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THE COOPERATIVE 
ELEVATOR MOVEMENT 



A STUDY IN GRAIN MARKETING AT COUNTRY POINTS 
IN THE NORTH CENTRAL STATES 



DISSERTATION 

Submitted to the Faculty of Philosophy of the Catholic Uni- 
versity of America in partial fulfillment of the require- 
ments for the Doctorate in Philosophy 



BY 

Joseph B. Kenkel, C. PP. S. 

Catholic University of America 

Washington, D. C. 

1922 






11 



THE COOPERATIVE 
ELEVATOR MOVEMENT 



A STUDY !N GRAIN MARKETING AT COUNTRY POINTS 
IN THE NORTH CENTRAL STATES 



DISSERTATION 

Submitted to the Faculty of Philosophy of the Catholic Uni- 
versity of America in partial fulfillment of the require- 
ments for the Doctorate in Philosophy 



BY 

Joseph B. Kenkel, C. PP. S. 

Catholic University op America 

Washington, D. C. 

1922 



^r 



0^ 



Copyright 1922 
By The University Press 



Oift 



Chas. H. Potter & Co., Inc. 
Washington, D. C. 



TABLE OF CONTENTS 



Page 



CHAPTER I 



CHAPTER II 



CHAPTER III 



Introduction v 

General Characteristics and Costs of Grain 
Marketing 1 

Modem Marketing Methods, an Outgrowth of 
the Industrial Revolution 

Agricultural Products at present generally 
Marketed by Middlemen 

Attitudes regarding the Economic Value of 
Middlemen 

Functions- of Middlemen in the Marketing of 
Grain 

Methods of Marketing Grain in the United 
States 

Costs of Marketing Grain in the United States 

Dissatisfaction of Grain Growers on account of 
These Costs 

Their Proposal of Cooperative Marketing as a 
Substitute System 

Historical Survey of Cooperative Grain Mar- 
keting IN the North Central States 11 

Origin of Cooperative Grain Marketing in the 
United States 

Cooperative Grain Marketing and the Grange ^y' 

Temporary Decline of this Organization 

Political Character of Succeeding Organiza- 
tions and Consequent Decline of Rural Co- 
operative Enterprises 

Growing Dissatisfaction of Farmers with Price 
Received for Grain 

Abuses Existing in Grain Trade toward End of 
Last and Beginning of Present Century 

Opposition of Organized Grain Dealers to the 
Early Cooperative Elevator Companies — 
Opposition Largely Explains Later Growth 
of Cooperative Elevator Movement 

Later Growth of Cooperative Elevator Move- 
ment 

The "Penalty Clause" as a Feature of the 
Movement 

Growth of the Movement from 1903-1913 

Growth of the Movement since 1913 

Present Status of the Movement as to: 

(1) Number of Cooperative Elevator Com- 

panies 

(2) Number of Members 

(3) Volume of Business 

Structure and Functions of the Local Mar- 
keting Associations 35 

Local Companies, the Fundamental Units of the 
Movement 

Their Method of Distributing Profits as a Basis 
of Classification 

Comparative Study of the Number of Com- 
panies Organized as: 

(1) Ordinary Capital Stock Corporations 

(2) Joint Stock Companies 

(3) Capital Stock Corporations with Cooper- 
ative Features 

(4) Truly Cooperative Associations 

iii 



Page 

(a) Cooperative Capital Stock Associa- 
tions 

(b) Cooperative Non-stock Associations 
Articles of Incorporation 

Adoption of By-laws 

Local Conditions and State Incorporation Laws 

Determining the Provisions of By-laws 
Principal Features of By-laws 
Number of Members Comprising a Company 
Volume of Grain Handled 
Incidental Functions 
Financing 

Variations in the Distribution of Earnings 
The County Unit Plan 
Companies Affiliated with Terminal Marketing 

Associations 
The U. S. Grain Growers, Inc. 

CHAPTER IV Agencies Promoting Cooperative Grain Mar- 
keting 67 

The Farmers State Grain Dealers Associations 
The Farmers National Grain Dealers Associa- 
tion 
The American Cooperative Publishing Company 
The Farmers Educational and Cooperative Union 
The American Society of Equity 
The Farmers Equity Union 
The Non-partisan League 
The American Farm Bureau Federation 

CHAPTER V Results Achieved Through Cooperative Grain 

Marketing , 87 

Cooperative Elevator Companies as Competitive 
Factors in Country Grain Marketing 

(1) Formerly 

(2) At present 

Profits Realized by Individual Companies 

(1) Survey in Minnesota 

(2) Comparative Survey of Federal Trade 
Commission 

Educational and Social Advantages Derived 
from Membership in a Cooperative Eleva- 
tor Company 

CHAPTER VI Factors of Success in Cooperative Grain 

Marketing Ill 

Feeling of Community Interests 

Large Volume of Business 

Proper Plan of Organization 

Incorporation and By-laws 

Efficient Management 

Accounting and Auditing 

Loyalty of Members 

Centralization of Effort 
CHAPTER VII Summary and Conclusion 133 

Appendices 143 

(1) Form of Incorporation for a Local Asso- 
ciation 

(2) Form of By-laws for a Local Association 

Bibliography 150 

Vita 155 

iv 



INTRODUCTION 

The present treatise reviews a movement which has 
arisen among the grain growers of the North Central 
States, and which during recent years has spread at a 
rapid rate. Many grain growers of this region, because 
they have considered excessive the charges demanded by 
country grain dealers for the service they perform in 
marketing grain, have organized themselves into local 
associations for the purpose of marketing their grain co- 
operatively. 

The term North Central States as used in these pages 
corresponds with the usage adopted by the United States 
Census Bureau. It includes the following States: Ohio, 
Indiana, Illinois, Iowa, Nebraska, Kansas, Missouri, North 
and South Dakota, Minnesota, Michigan, and Wisconsin. 
Although cooperative grain marketing is no longer con- 
fined to the States just named, nevertheless, the vast ma- 
jority of the associations thus far organized are within the 
limits of this territory. It is in this region that the move- 
ment had its origin and its fullest development. 

The term cooperation connotes essentially the voluntary 
association of persons for the attainment of a common 
object. In its more specific and technical usage, coopera- 
tion or cooperative enterprise designates a distinct type 
of business organization. When thus used, it stands for the 
application of certain business principles, whereby a con- 
cern adopting them is distinguished from sole proprietor- 
ship, the partnership, and the ordinary capital stock 
corporation. These principles are the so-called ''one-man 
one-vote" feature, which allows to each member of the 
enterprise only one vote regardess of the amount of capital 
he may have invested in it ; the limitation of the amount of 
capital each person may invest; and the distribution of 
savings in proportion to the amount of business each 
member or patron has transacted with the concern, after a 
stipulated rate of interest has been allowed on the invested 



capital. Many of the cooperative grain marketing associa- 
tions of the North Central States are conducted according 
to these principles, and an effort is made in this treatise 
to ascertain what percentage of the total number operate 
on this basis. But many associations not embodying these 
features have likewise been included in this discussion be- 
cause they have been organized with the same end in view 
as the associations just referred to, and as such form part 
and parcel of the general movement to be described. 



VI. 



CHAPTER I 

General Characteristics and Costs of Grain 
Marketing 

The Industrial Revolution, beginning in England toward 
the end of the eighteenth century, ushered in a new order 
in economic and social life. The marvelous expansion of 
commerce, trade, and industry consequent thereupon, ex- 
tended to both city and country. The most profound 
changes in rural economy were the passing of the self- 
sufficing farm or community and the creation of a world 
market for agricultural products. Where formerly there 
had existed a series of local and restricted markets, now 
for some products there began to exist only one market 
and that a world-wide one. Where formerly the farm had 
been for the greater part a self-sufficing unit, now through 
the greater division of labor it produced largely for others 
and used and consumed what others produced or fashioned. 
These two fundamental facts of the present day were the 
most significant changes wrought in rural life through the 
application of steam and electricity to transportation and 
communication.^ 

With the passing of the tiousehold economy of the farm 
and the extension of the market for agricultural products, 
the system of marketing has undergone a vast change. In 
fact, an entirely new system has come into existence. 
Agricultural products today are generally marketed by 
agents who in economic terminology are called middlemen. 
A middleman in this sense is "one through whose hands 
goods pass from one trader to another or to a consumer." - 
Without enumerating these various agents or describing 
their respective functions in the marketing of the different 
agricultural products, it is sufficient to call attention to 
certain attitudes which have arisen in regard to the theory 



1 Cf. Carver, T. N,, The Organisation of Rural Interests, in a Reprint 
from Yearbook of U. S. Dept. of Agri., 1913, pp. 239-40. 

2 Palgrave, R. H., Dictionary of Political Economy, Vol. Ill, p. 753. 



2 THE COOPERATIVE ELEVATOR MOVEMENT 

and the practices of the middleman. These attitudes vary 
from that of absolute condemnation to that of unqualified 
approbation. Those representing the extreme wing of 
opposition regard him as one who by some devious way 
has insinuated himself between the producer and the con- 
sumer, performing no useful task for either and taking 
exorbitant profits from both. Those representing the ex- 
treme wing of approval regard the middleman as perform- 
ing not only a very useful but also a necessary function in 
modern enterprise, and hold that the abuses which have 
crept in now and then are to be regarded as defects such 
as cling to all human institutions. 

The very extremeness of these views inclines one to 
think that both of them contain truth mixed with error 
or vice versa. It is readily conceivable and even probable 
that the middleman is performing not only a useful but 
also a necessary function in the marketing of some agri- 
cultural products, while in the marketing of others he may 
be dispensed with entirely. Similarly, it is readily con- 
ceivable that in virtue of economic power the middleman 
may at times have taken exorbitant profits at the expense 
of both producer and consumer, while at other times he may 
have borne the losses that producers and consumers would 
have incurred under a system of direct distribution.^ 

In general it may be safely said that the functions which 
these middlemen perform are a necessary phase of the 
marketing process. But doubt has arisen in the minds of 
many farmers, and this holds true in a special manner of 
the grain growers, whether at least some of these functions 
might not be more economically performed by themselves. 
Thus it is readily seen that the real issue between the grain 
grower and the middleman relates to the fairness of the 
charge which the latter exacts for the service that he per- 
forms. It is this issue which lies at the basis of and offers 
the key to the explanation of the origin and growth of the 
movement described in these pages. 

3 Cf . Fetter, The Theory of the Middlematf, and Kiely, The Middleman 
in Practice, both in Bailey, Cyclopedia of American Agriculture, Vol. IV, 
pp. 239-243 ; Taylor, Henry C, Agricultural Economics, pp. 357-365 ; Friday 
David, The Economic Function of the Middleman, a paper contributed to 
the National Conference on Marketing and Farm Credits, 1915, pp. 113-123. 



CHARACTERISTICS AND COSTS OF MARKETING 3 

Regardless of whether these functions are performed 
by middlemen or by the grain growers themselves, it is evi- 
dent that the marketing of grain is a gigantic task when we 
contemplate the amount that is yearly shipped from the 
producing areas to the consuming centers. The annual pro- 
duction of grain in this, country is stupendous in volume, 
and almost one-half of this immense amount is not consumed 
in the locality where it is grown. Thus, according to the 
United States Department of Agriculture, the volume of 
production in 1918 for the three principal grain crops was 
as follows: wheat, 940,987,000 bushels;* oats, 1,248,310,^ 
000 bushels;^ corn, 2,917,450,000 bushels.^ In that same 
year, of this amount 565,433,000 bushels of wheat,^ 474,- 
139,000 bushels of corn,« and 321,223,000 bushels of oats « 
were shipped out of the county in which the grain had been 
produced. 

Almost the whole amount of grain that is not consumed 
in the immediate locality, passes through country grain 
elevators or warehouses ^^ before it is shipped to the termi- 
nal or central markets for milling and final distribution to 
the consumer. From this fact it readily follows that ele- 
vators and warehouses serve an important economic pur- 
pose in every town of a surplus producing grain section. 
Their primary purpose is to provide a local market for the 
surplus grain of the community. They serve also as col- 



* Yearbook, 1919, p. 525. 
** Opus. cit. p. 535. 
^ Loc. cit. p. 513. 
7 Loc, cit. p. 525. 
^ Loc. cit. p. 535. 
^Loc. cit. p. 513. 

10 Warehouses are distinguished from elevators principally by their type 
of construction. The warehouses are low buildings especially adapted for 
handling grain in sacks, while the elevator is a high building especially 
adapted for handling grain in bulk. The warehouse was more common 
formerly when sack handling prevailed. In the North Central States al- 
most all of the grain is handled in bulk, and this explains why the number 
of warehouses in this section is relatively insignificant. Cf. "Report of the 
Federal Trade Commission on the Grain Trade," Vol. I, Country Grain 
Marketing, pp. 23-25. 



4 THE COOPERATIVE ELEVATOR MOVEMENT 

lecting points and as temporary storage places ^^ for grain 
until such time as from numerous wagon-loads, car ship- 
ments may be made. Frequently the country elevators are 
also provided with cleaning and drying machinery to pre- 
pare unsatisfactory grain for shipment. Sometimes a flour 
mill is conducted in connection with the elevator, and usually 
sidelines, such as coal, lumber, fencing, cement, and other 
supplies, are also haridled.^^ 

Country grain elevators from the viewpoint of owner- 
ship and management may be divided into various tjrpes" 
but it is sufficient here to distinguish three classes, namely, 
those of the line elevator companies; the elevators owned 
and operated by local or independent dealers; and those 
owned and operated by the grain growers themselves 
through an association or corporation organized for this 
purpose. The line elevator company usually has its head- 
quarters in one of the terminal market cities, and its distin- 
guishing feature is its ownership and operation of two or 
more grain elevators located at different country stations,^^ 
The local or independent dealers are individuals, partner- 
ships, or corporations, that own and manage only one grain 



11 Sometimes individual growers may wish to have their grain stored in 
the elevator until such time as they care to sell it. For this service the 
elevator or warehouse usually charges a fee. 

12 Livingston and Seeds, Marketing Grain at Country Points, in Bulletin 
558, pp. 5-10, U. S. Dept. of Agric. 

13 The Federal Trade Commission in its recent Report on the Grain 
Trade, distinguishes two general types of country grain elevators, namely, 
the line and individual houses. A line house it defines as "one operated by 
an organization which operates two or more houses located at different 
points" (Vol. I, p. 30). The individual house is "one which operates 
locally only and is managed without reference to the operation of other 
houses except in so far as it may be competitively affected by them" 
(Ibidem). Each of these general types the Commission divides into four 
sub-classes. The line type of house is divided into the "commercial line," 
corresponding to the line elevator company in our description ; the "coopera- 
tive line," which is a collective name for two or more elevators owned and 
operated by a local association of grain growers ; the "mill line," which is a 
collective name for two or more elevators owned and operated by millers ; 
and the "malster line," which designates two or more elevators owned and 
operated by malsters or brewers. The same sub-classification is followed 
for the individual houses. (Loc. cit. pp. 30-3). 

1* While a line elevator company must own and operate at least two 
elevators before it can be called a line company, most of the line com- 
panies own and operate many more than that number. Cf. Report of the 
Federal Trade Commission on the Grain Trade, Vol. I, p. 30. 



CHARACTERISTICS AND COSTS OF MARKETING 5 

elevator; and they usually have their headquarters at the 
country station where their elevator is located. The third 
class of elevators referred to, are ov^ned and operated by 
associations of the grain growers themselves instead of by 
an outside agent. It is this feature which has led these 
elevators to be classed as cooperative, and in the succeeding 
pages the terms, farmers' elevator company, cooperative 
elevator company, and cooperative grain marketing asso- 
ciation, will be used synonomously unless otherwise indi- 
cated. The elevators thus owned and managed are further- 
more distinguished from the line elevator companies by the 
fact that the cooperative elevator company generally owns 
and manages but one elevator,^ ^ and has its headquarters 
at the place where its elevator is located.^^ 

Grain is purchased at the country elevator according to 
four methods: at a flat rate, by grade, by grade subject to 
dockage, and by grade after cleaning. The price paid for 
grain at country stations is regulated in the main^^ by the 
price paid in the terminal markets. A margin sufficiently 
wide is taken to cover costs of operating and at the same 
time to provide a profit.^® 

Grain is sold by the country elevator according to three 
methods : "on track," to arrive,", or it is "consigned." 
When the grain is sold "on track," the buyer pays the freight 
charges, and when the sale is one "to arrive," the seller 
pays them. In both instances, a specified time, varying 



1^ Several of the cooperative elevator companies own and operate more 
than one elevator. These companies the Federal Trade Commission in its 
Report on the Grain Trade, refers to as "cooperative line" companies. 

1^ Besides the owners of elevators and warehouses, there are a number 
of other agents who buy grain at country stations, the principal ones of 
whom are track buyers, who purchase grain from both farmers and ele- 
vator owners, and resell to whatever buyer offers the best price; scoop- 
shovelers, who buy grain from the farmers and usually "scoop" or shovel 
the grain directly from the wagon into the car ; terminal dealers, who are 
representatives of terminal market dealers, and buy grain directly from the 
farmers ; brokers, who buy and sell grain on a commission basis. See Re- 
port of the Federal Trade Commission, Opus cit. pp. 95-97, The combined 
purchasing of these various agents does not, however, affect the statement 
that most of the grain shipped from country stations passes through the 
local elevator or warehouse. 

1'^ Competitive conditions at country stations also have an influence in 
determining the price paid. 

IS Livingston and Seeds, Opus cit. pp. 6-10. 



6 THE COOPERATIVE ELEVATOR MOVEMENT 

generally from three to fifteen days, is fixed within which 
shipment must be made, or again, the grain must be at the 
destination of the buyer within that time accordingly as the 
terms of sale have been framed.^® 

When grain is sold either "on track" or "to arrive," to 
interior mills or to dealers in places where there is no in- 
spection, there are generally no other charges than those 
of freight. Should the sale be one "to arrive" and to a 
place where there is inspection and weighing, the consignor 
in this instance pays these charges. Also in sales "on 
track," if the seller guarantees the weight and grade of the 
shipment, he generally pays these charges to verify the 
guarantee.^** 

The third method of sale is that of consigning. When 
grain is consigned, it is sent to a commission merchant in a 
terminal market city, who either sells the grain at once, 
stores it in a terminal elevator, or has it held in cars if this 
be the wish of the consignor. If the grain is stored in a 
terminal elevator, the consignor is credited with a re- 
ceipt which specifies the amount, kind, and quality of grain 
stored. When the consignor wishes to sell his grain, he in- 
forms his commission merchant, who thereupon sells the 
grain "in store." The receipt for the grain is then in- 
dorsed to the purchaser, and this indorsement gives him 
title to the grain. The commission merchant then renders 
an account sale of the transaction, whereupon he remits 
to the consignor any balance due him.^^ 

Most of the grain shipped from country stations to the 
primary markets, is bought and resold on the grain ex- 
changes or boards of trade. Almost all of the cooperative 
elevator companies, as also the local or independent dealers, 
sell their grain on the exchange by hiring the services of a 
commission merchant. Those line elevator companies 
whose total amount of grain handled is comparatively large, 
sell their grain on the exchanges through their own repre- 



^*Opus cit. p. 11. 

20 Ibidem. 

2^ Loc. cit. p. 12 ; Siebel Harris, Methods of Marketing the Grain Crop, 
pp. 362-65, in Annals of the American Academy of Pol. and Soc. Science, 
Vol. 38 (1911). 



CHARACTERISTICS AND COSTS OF MARKETING 7 

sentatives.22 The vast majority of the grain sold on the 
exchanges or boards of trade, is bought by the terminal 
elevator companies, although in a few terminal markets ^^ 
much of it is bought by millers, and also by other dealers. 

The two principal activities of the terminal elevator com- 
panies, in addition to the buying and selling of grain, are 
the storing and mixing of it. When they accept grain for 
storage from country shippers awaiting more favorable 
market conditions, they do not sell that grain, nor do they 
mix it unless requested to do so. They demand, however, 
a storage fee, and this constitutes one of the sources of 
their profits. Through mixing grain of various grades, the 
terminal elevator companies can realize additional profits. 
The explanation of these profits is bound up with the system 
of double inspection in vogue. Grain is inspected before it 
is stored in terminal elevators and again before it is taken 
out. By judiciously mixing grain of a higher grade with 
that of a lower, it is frequently possible to mix the whole 
bulk so as still to meet the requirements of the higher grade. 
Thus, much of the grain that is bought by the terminal 
elevator companies, is resold at a higher grade than at 
which it was purchased. After the grain is thus mixed, 
and if the market is favorable, the terminal companies sell 
their grain to exporters and to other shippers. 

This then in brief outline describes the present grain mar- 
keting system. It now remains to consider what compensa- 
tion is demanded by each of the agents handling grain from 
the time that it enters the country elevator until it has been 
sold in the terminal markets to the terminal elevator com- 
panies, the millers, and other dealers. 

In 1913, the United States Department of Labor conduct- 
ed a survey, the object of which was to ''ascertain the rela- 
tion existing between wheat prices and retail prices of 



22 In 1918, line elevator companies owned 10 memberships on the Chicago 
Board of Trade, according to the Federal Trade Commission {Report 
on the Grain Trade, Vol. II, p. 75). They also owned 69 at Minneapolis 
(p. 143) ; 8 at Kansas City (p. 160) ; 13 at Omaha (p. 165) ; 7 at 
Peoria (p. 176) ; 5 at Indianapolis (p. 180) ; 4 at St. Louis (p. 172). and 
1 at Toledo (p. 182). 

2* Especially in Minneapolis, and to some extent in Duluth, Opus cit. 
pp. 143 and 155. 



8 THE COOPERATIVE ELEVATOR MOVEMENT 

flour, and second to determine the cost of distribution or 
the price accretions as the wheat and flour pass through the 
various hands from producer to consumer." ^^ The en- 
quiry was limited to hard winter wheat and flour made from 
it, and since Kansas is the leading State in the production of 
hard winter wheat, the data for the survey were gathered 
from that State. The years selected for study were, 1906, 
1910, and 1911. Each year was divided into two periods, 
quotations being taken for the months of March and Oc- 
tober.^s 

According to the results of this survey, the elevator op- 
erator usually buys wheat at about three cents per bushel 
below the price at which he can sell it "on track" at the 
time. Naturally the operator is desirous of greater profits, 
but competition generally holds him at this margin.^® 

The freight rate per car lot is governed by the distance 
shipped. "The rates in 1911 from the stations from which 
wheat prices were obtained ranged from 8.5 to 14.5 cents 
per hundred pounds, or 5.1 to 8.7 cents per bushel. An ac- 
curate average for the State could not easily be computed, 
but probably a fair estimate of the average rate from the 
hard wheat area in Kansas to Kansas City is about 12 cents 
per 100 pounds, or 7.2 cents per bushel." ^^ 

Commission nien and jobbers ^^ receive on the average 
of one cent per bushel for handling wheat.^® 

If wheat is stored in terminal elevators, there is an ad- 
ditional charge. In Kansas City the charge was one cent 
per bushel for the first twenty days or part thereof, and 
one-fortieth of a cent for each subsequent day.^^. 

From this survey it is seen that in 1911, when the price 
level for all services was considerably lower than at pres- 



24 Bulletin of the U. S. Dept. of Labor, No. 130, Wheat and Flour 
Prices, from Farmer to Consumer, p. 5. 

25 Ibidem. 

26 Opus cit. p. 10. 

27 Lac. cit. p. 10. 

28 The grain jobber diflPers from the commission merchant in this that 
the former buys and sells grain on his own account, assuming the risk 
of loss. The commission merchant buys and sells for another, and receives 
a compensation or commission for his service. 

29Loc. cit. p. 11. 
30 Ibidem. 



CHARACTERISTICS AND COSTS OF MARKETING 9 

ent, the price to be paid by the consumer for a bushel of 
wheat had increased by 12 cents over the price received by 
the grower before the wheat had been sold in the terminal 
markets. A survey similar in scope to the one just de- 
scribed, was conducted by the United States Department of 
Agriculture in 1914, and the results arrived at were prac- 
tically identical. In commenting upon the margins taken 
by the various agents handling grain, the report says : "The 
weakest link in the chain of marketing Kansas wheat is the 
country elevator. Compared with the value and the diffi- 
culty of the service rendered, the margin taken by the 
country elevator is perhaps larger than that taken by any 
other middleman in the marketing of wheat." ^^ This has 
been emphatically the conviction of many grain growers 
not only in regard to the marketing of wheat but of other 
kinds of grain as well. It is because they have considered 
the service rendered by the local middleman handling grain 
not worth the cost that they have organized themselves into 
associations for the purpose of owning and operating grain 
elevators at country points. A review of their efforts and 
accomplishments as exemplified in the North Central 
States, is given in the succeeding chapters. 



31 Houu Doc. No. 1271, 63d Cong. 3d sess.. p. 28. 



CHAPTER II 

Historical Survey of Cooperative Grain Marketing in 
THE North Central States 

Cooperative grain marketing was not extensively en- 
gaged in by the grain growers of the North Central States 
until the beginning of the present century, and prior to that 
date the information available regarding this form of en- 
terprise is very meagre. It may, however, be said that the 
origin of cooperative grain marketing is roughly contem- 
poraneous with the close of the Civil War. It was shortly 
after that conflict, in 1867, that the first great rural organ- 
ization of this country, namely, the Order of the Patrons of 
Husbandry, more commonly known as the Grange, was 
founded, and through its activities a number of cooperative 
grain elevator companies were formed. 

Because of the important influence that the Grange has 
exercised upon subsequent cooperative efforts among the 
farmers of this country, it may be well to outline briefly the 
salient characteristics of this organization. The Grange 
was designed to improve the social, educational, and eco- 
nomic status of the American farmer. It was a secret, 
fraternal Order of farmers, founded on December 4th, 
1867, at the National Capital.^ The Grange was conceived 
and planned by Oliver Hudson Kelley,^ a clerk at the time 
in the U. S. Post Office Department. Travelling through 
the South, he was singularly struck with the lack of a pro- 
gressive spirit among the farmers of that region. Being 



1 The literature on the Grange is very extensive. A brief exposition 
of the Order, its aims and achievements, by Kenyon L. Butterfield, 
may be found in the Forum, Vol. 3, pp. 231-242 (April, 1901). For an 
extensive treatment and bibliography, the reader is referred to Solon Buck, 
The Granger Movement. This volume is the nineteenth in the Harvard 
Historical Studies, and is without doubt the most authoritative work 
on this subject. 

2 Kelley wrote a history of the Grange, which contains an account of its 
origin and activities in its early years. The title of the work is: Origin 
and Progress of the Order of the Patrons of Husbandry in the United 
States; a History from 1866-1873. Kelley died in his home at Washing- 
ton, D. C., Jan. 20, 1913. 

11 



12 THE COOPERATIVE ELEVATOR MOVEMENT 

a Freemason and fully cognizant of the value of organiza- 
tion, he came to the conclusion that a national secret order 
of farmers was needed to further the industrial reconstruc- 
tion necessary in the South and at the same time to advance 
agriculture throughout the country. 

He enlisted the services of W. M. Ireland, another clerk 
in the Post Office Department, and of William Saunders, a 
clerk in the Agricultural Bureau, and conjointly they wrote 
a circular,^ which outlined the deficiencies of the existing 
agricultural societies, and at the same time proposed a new 
organization, modeled upon the order of Freemasonry. The 
object was to be the advancement of agriculture and the 
creation of a closer bond of union among all the farmers 
of the country. 

The founders immediately framed a constitution and 
worked out a ritual. They organized also a subordinate 
Grange at Washington, D. C, to serve as a school of instruc- 
tion.'* After this preliminary work had been done, the 
scene of activities shifted to the Canadian Northwest, where, 
it was thought, the time was ripe for the introduction of the 
order because of the discontent among the farmers there and 
their growing desire to find some means of joint action 
against the oppressive railroads and monopolies.^ 

The success looked for in the Northwest was, however, 
not achieved at once. The constitution as originally drawn 
up and the circulars advertising the order, emphasized the 
fraternal, social, and educational rather than the financial 
or economic benefi.ts to be derived from membership. The 
farmers on the other hand were primarily interested here 
as elsewhere, in economic gain. On account of this fact, 
the Grange soon enlarged the scope of its activities so as 
to include various business features. Cooperative buying 
of farm supplies, selling of farm produce, the cooperative 
manufacture of farm implements, banking and insurance 



3 Quoted in A Documentary History of American Industrial Societx, Vol. 
X, pp. 74-76. 

* S. J. Buck, Opus cit. p. 43. 

^ For a description of the rural conditions in the Northwest following 
immediately upon the Civil War, see Albert Shaw, Cooperation in the 
Northwest, p. 334, in Johns Hopkins University Studies in Historical and 
Political Science, Sixth Series. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 13 

conducted along cooperative lines — ^these were some of the 
business enterprises sponsored by the National Grange. 
These cooperative ventures soon became the leading feature 
of the Granger Movement, the leading cause of its mar- 
velous growth during the years 1873-75,® and the leading 
cause of its equally rapid, decline during the late seventies. 
The various cooperative selling agencies of the Grange 
were all based on the general idea that the relation between 
the farmer and the consumer of his products had become too 
indirect and intermediate by the introduction of an un- 
necessarily large number of middlemen, who were absorb- 
ing the farmers' profits. This principle was clearly stated 
in the platform or declaration of purposes adopted by the 
National Grange at its annual convention in 1874: 

"For our business interests we desire to bring producers and con- 
sumers, farmers and manufacturers, into the most direct and friendly 
relations possible. Hence, we must dispense with a surplus of mid- 
dlemen, not that we are unfriendly to them, but we do not need them. 
Their surplus and their exactions diminish our profits." "^ 

It was with this purpose of bringing "producers and con- 
sumers into the most direct and friendly relations and to 
dispense with a surplus of middlemen," that several cooper- 
ative grain elevator companies were organized in the North 
Central States through the activities of the Grange. In 
Iowa, the Grangers maintained that they owned one-third 
of the grain elevators and warehouses in the State.^ Not 
so much success was achieved in other States, although ac- 
cording to one writer, "in a number of states the farmers 
at the time owned a considerable number of elevators.® 

Whatever the precise number of elevator companies that 
may have been organized through the activities of the 



6 According to Professor Buck's computations, the total number of mem- 
bers of the Grange on October 1, 1875, was 758,767. Of these 390.734 
were in the North Central States. Opus cit. pp. 58-59. 

"^ Proceedings of the National Grange, Seventh Session, 1874. Quoted 
in A Documentary History of American Industrial Society, Vol. X. p. 99. 

8 S. J. Buck, Opus cit. p. 243 ; Cf . B. H. Hibbard, Cooperation in the 
Grain Elevator Business, in Bailey's "Cyclopedia of American Agricul- 
ture," Vol. IV, p. 267. Professor Hibbard says : "It is reported on fairly 
good authority that over half of the elevators in Iowa were once n\ the 
hands of Grange cooperators." 

^ H. E. Erdman, The Farmers' Elevator Movement in Ohio, p. 139, 
Bulletin 331, Ohio Agricultural Experiment Station, 



14 THE COOPERATIVE ELEVATOR MOVEMENT 

Grange/^ most of them shared its fate toward the end of the 
seventies. Badly managed because of the farmers' lack of 
business experience, opposed by the established grain deal- 
ers, and unsupported by their own members because of 
their loss of confidence in the Grange under whose direction 
they were started, most of these companies were short- 
lived.^^ 

At the beginning of 1880, the Grange in the North Cen- 
tral States as elsewhere, had practically ceased to func- 
tion. Since that time it has gradually revived, and is 
again one of the prominent rural organizations in the United 
States. At present, its principal efforts are directed toward 
the social and educational improvement of the American 
farmer, its original aim.^^ 

The Grange failing to achieve its purpose, other organi- 
zations soon arose to take its place. The most prominent of 
these was the Farmers' Alliance.^^ Through its influence 
and activities, cooperative enterprises were formed similar 
to those already described. But business cooperation became 
more and more an incidental feature of its program of 
social reform. It sought to achieve its ends rather through 
political action, and as such lost its immediate industrial 
character. 

Many cooperative elevator companies were organized 
during the decade of the eighties. Thirty-nine of these re- 



10 The Encyclopedia of Social Reform (Bliss, Editor-in-Chief) in its 
article on cooperation in the United States, says that at one time the 
Grangers conducted 32 elevators in connection with their marketing ac- 
tivities. The Federal Trade Commission in its recent Report on the Grain 
Trade, states that nine cooperative elevator companies reported as having 
been organized prior to 1880, Vol. I, p. 47. 

11 B. H. Hibbard, Opus cit. p. 236 ; Erdman, Opus cit. p. 139. See also 
general causes of failure of the Grange in Buck, Opus cit. pp. 274-277; 
A. C. Warner, Three Phases of Cooperation in West, pp. 387-391, in Johns 
Hopkins University Studies, Sixth Series. 

12 Paul L. Vogt, Introduction to Rural Sociology, p. 249 ; cf . Kenyon 
L. Butterfield, Chapters in Rural Progress, pp. 136-162. 

13 For an exposition of the objects and achievements of the Farmers' 
Alliance, the reader is referred to Frank Drew, The Present Farmers' 
Movement, in "Political Science Quarterly," Vol. VI, pp. 282-310. See 
also N. A. Dunning, The Farmers' Alliance History and Agricultural 
Digest, especially, pp. 225-7. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 15 

ported as still operating in 1918, when the Federal Trade 
Commission made its survey of country grain marketing.^* 
No doubt several others w^ere organized but disappeared 
under the stress of competition, or failed because of poor 
management and non-support on the part of their own 
members.^^ 

The cooperative elevator movement made considerable 
progress during the nineties, especially from 1895 to 1900. 
One hundred and thirty-three companies reported to the 
Federal Trade Commission as having been organized prior 
to 1900.^^ This represented an increase of 94 companies 
within ten years, and an increase of 69 since 1895, because 
64 companies reported as having been organized prior to 
that date.^^ ^ 

As to the number of companies formed in the different 
states, between the years 1890 and 1900, no definite infor- 
mation is vailable except for Minnesota. In 1915, there 
were in that State, thirty companies that had been organ- 
ized prior to 1900.^^ On the other hand, as Professor 
Weld*s survey shows, comparatively few companies were 
organized in that State prior to 1890.^^ Several companies 
were begun also in the States of North and South Dakota,^^ 
Illinois,^ and Kansas.^^ How many were organized in each 
of these States and how many were still in operation at the 



14 opus cit. Vol. I, p. 47. 

15 John L. Coulter, Cooperation among Farmers, p. 120; O. N. Refsell; 
The Farmers' Elevator Movement, p. 874, in "Journal of Political Econ- 
omy," Vol. 22 (Nov., 1914) ; L. D. Weld, Farmers' Elevators in Minnesota, 
p. 5, Bulletin 152, Agricultural Experiment Station; Charles Wolcott, A 
Gigantic Conspiracy ; The Northwestern Wheat Ring, pp. 16-27. 

i« Opus ciL p. 47. 

1'^ Ibidem. A number of the so-called farmers' or cooperative elevators 
of this period were not such in any adequate sense of the word. "They 
were nothing more in fact than independents, the companies operating 
them being composed largely of local business men with a few farmers 
to give them the name." Opus cit. p. 81. 

18 Durand and Jansen, Farmers' Elevators in Minnesota, 1914-15, p. 9. 
Bulletin 164, Agricultural Experiment Station. 

19 Opus cit. p. 5. 

20 Charles Wolcott, Opus cit. p. 27. 

^''^ American Cooperative Journal, Vol. Ill, p. 23 (Sept., 1907). 
22 Nineteenth Biennial Report of the Kansas State Board of Agriculture, 
p. 156. 



16 THE COOPERATIVE ELEVATOR MOVEMENT 

beginning of 1900, it is impossible to ascertain from avail- 
able data. It is probable, however, that the majority of 
the companies formed during this decade outside of Minne- 
sota, were in North and South Dakota. In these States, 
the movement had made some progress during the preced- 
ing decade, and suspicion was rife among the farmers there 
that a combination existed which was depressing the prices 
farmers were receiving for their grain. 

The relatively growing increase in the number of co- 
operative elevator companies organized during the period 
between 1890 and 1900, and especially since 1895, is very 
probably to be explained in the light of the changing con- 
ditions that began to surround country grain marketing at 
that time. As will presently appear in detail, the line 
elevator companies and the local or independent dealers, 
through various sorts of agreements entered into among 
themselves, were gradually eliminating competition from 
country grain buying, so that at the end of the decade 
competition in a large number of country stations was prac- 
tically non-existent. That the line companies and the inde- 
pendent dealers were guilty of stifling competition, the 
farmers were thoroughly convinced. On the other hand, 
through experience they had learned how they frequently 
had brought about the ruin of their own enterprises by not 
supporting them when their competitors were temporarily 
paying higher prices for grain than did their own com- 
panies. As a means of redress, therefore, against these 
growing abuses of the established grain dealers, it is highly 
probable that the farm^ers resorted more frequently to 
organizing elevator companies, and that they supported 
tliem even though their competitors were offering appar- 
ently better bargains. 

It is indeed primarily in the light of the abuses practiced 
by the line elevator companies and the local or independent 
dealers that the cooperative elevator movement can be prop- 
erly understood. In these abuses lie the causes which 
prompted the grain growers anew to organize elevator 
companies even though their previous efforts had ended in 
frequent failure. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 17 

There is little doubt that a considerable amount of compe- 
tition prevailed in country grain buying prior to 1890.^^ 
Competition, however, gradually gave way to combination, 
which tended to minimize competition or in very many 
places to eliminate it altogether. The state of affairs 
thereby created was the cause of widespread dissatisfaction 
among the farmers. Their repeated complaints induced 
Senator LaFollette Jo introduce into the United States Sen- 
ate, on June 25, 1906, a resolution directing the Interstate 
Commerce Commission to make an investigation of the 
alleged abuses existing in grain buying and shipping.^* 
The resolution was adopted, and on October 15th of the 
same year the Commission began its hearings at Chicago. 
Hearings were held also at Kansas City, Omaha, Des 
Moines, Milwaukee, Minneapolis, and Duluth.^^ 

These hearings disclosed the fact that the dissatisfaction 
of the grain growers was not without justification. Vari- 
ous agreements or arrangements were shown to have ex- 
isted toward the end of the last and at the beginning of 
the present century, all of which had the general effect of 
eliminating competition in country grain buying. In the 
Northwestern States of Minnesota, North Dakota, and 
South Dakota, these agreements were particularly preva- 
lent among the line elevator companies, ^^ but the local deal- 
ers also were frequently partners. 

One of these agreements operated as follows: It was 
first decided what percentage of the grain at a country 
station each elevator operating there should receive. Those 
elevators that received more than their allotted percentage 



23 See, however, Wolcott, Opus cit. That there was much dissatisfaction 
prior to that date among the grain growers of Minnesota, North and 
South Dakota, because of alleged abuses in country grain buying, is un- 
questioned. That abuses existed similar in kind to the ones to be de- 
scribed, is also established, but there is no evidence that they were as 
prevalent as during the latter nineties and the first few years after 
1900. 

^"t Congressional Record, XL, Pt. 10, p. 9091. 

25 The investigation was printed as Senate Doc. No. 278, 59th Cong., 2d 
sess. 

2« The line companies were, however, also far more numerous in the 
Northwest than were the local or independent dealers. See Report of the 
Federal Trade Commission, Opus cit. p. 51. 



18 THE COOPERATIVE ELEVATOR MOVEMENT 

of grain were required to pay a penalty to those that got 
less than the amount to which they were entitled in virtue 
of the contract. Each of these elevators rendered a state- 
ment of its receipts to a central office, which acted as a 
sort of clearing house. The amounts of grain purchased 
by each elevator were tabulated by the central office and 
compared with the amounts to which each elevator was 
entitled. Those that received more than their allotted 
share, through the central office paid the penalty, usually 
two and one-half cents per bushel on wheat, to those eleva- 
tors that had received less.^^ One agreement of this kind 
included forty line elevator companies, which together con- 
trolled approximately 950 elevators.^^ 

These agreements were, however, not always confined to 
the amount of grain that each elevator was entitled to and 
the penalty to be imposed for not living up to the agree- 
ments, but they included at times also arrangements as to 
prices to be paid and the amount of dockage to be taken.-® 

Agreements of this kind of course destroyed almost all 
incentive to obtain a fair share of the grain at a country'- 
station by increasing the price. If dealers failed to get 
their fair share of grain, they would be recompensed at the 
end of the month, or whenever settlement was made, by 
the penalties enforced on those who had received more than 
their share according to the terms of the contract. 

In the States further to the south, namely, Nebraska, 
Iowa, Illinois, and to some extent Kansas, agreements ex- 
isted among the grain dealers, the purpose of which was the 
same as that of those already described. In this territory 
the elevators of the local or independent dealers were more 
numerous than those of the line companies,^^^ but apparently 
the latter exerted more influence in procuring and main- 
taining these agreements. Both classes, however, operated 
through the State Grain Dealers' Associations, of which 



2? Sen. Doc, Opus cit. pp. 932, 940, 941. 

28 Opus cit. p. 941. 

29 See "Memorandum of Agreement at Worthington, Minn.,'* Interstate 
Commerce Commission, Docket 875, Vol. II, 1906. Quoted also in Sen. 
Doc, Loc. cit. p. 970. 

30 Report of the Federal Trade Commission, Loc. cit. p. 51. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 19 

they were members.^^ These associations had been formed 
for legitimate and laudable purposes,^^ but they soon ac- 
quired large power and abused it so that they practically 
dictated the price to be paid for grain and the conditions 
under which grain was to be bought and sold. 

The following quotation, which records the findings of 
fact of the referee in the case, State v. Omaha Elevator 
Company, ^^ is illustrative of the conditions prevailing in 
country grain buying toward the year 1900 and somewhat 
later, at very many country stations in the States just 
named. According to the findings of the referee, which the 
court sustained: 

"Some time prior to the year 1899 an association known as the Ne- 
braska Grain Dealers' Association was organized in this State, which 
adopted a constitution and by-laws under which it operated. Its officers 
consisted of a president, vice-president, secretary, treasurer, and a govern- 
ing board, consisting of the president, secretary, and three other mem- 
bers of the association. * * * 

"There were about 1,200 grain dealers, all told, in the State on April 
1, 1905, of whom 770 belonged to said Nebraska Grain Dealers' Asso- 
ciation, and about 200 more in sympathy with such association. To 
accomplish the objects of said association, * * * various expedients 
were resorted to by it, some of which were as follows: (a) A price 
committee, consisting of persons chosen from five of the leading corpo- 
ration members of said association, was formed, whose business it was 
to fix the prices which should be paid for grain by the various mem- 
bers of said association throughout the State, and the other regular 
dealers who worked in harmony with said association. All such mem- 
bers and persons were notified by card what such prices were, and 
as members of such association and regular dealers they were ex- 
pected and required to fix their bids for grain on the basis of the 
prices sent to them on the cards, and they were not to pay any more 
for grain than other regular dealers in the same locality. For the 
purpose of facilitating the business, the State was divided into 13 



31 In the Northwestern territory, including Southern Minnesota, South 
Dakota and Northern Nebraska, the grain dealers belonged to the Tri- 
State Association. This Association seems not to have been strongly or- 
ganized nor to have made the cooperative elevator companies the special 
object of attack as did the Associations further to the South, See Sen. 
Doc. Loc. cit. pp. 10-11. 

32 See by-laws of the Iowa State Grain Dealers' Association in Inter- 
state Commerce Commission Docket No, 875, Vol, II, 1906. Quoted also 
in Sen. Doc. Loc. cit. p. 656, 

3375 Nebraska, 655; 110 N. W., 874. Quoted also in Report of the 
Federal Trade Commission, Loc. cit. p. 85. 



20 THE COOPERATIVE ELEVATOR MOVEMENT 

districts, and it was the duty of some member of the association selected 
for that purpose on account of his or its superior location and facilities 
for that purpose, to send cards to all regular dealers in his district. 
The prices were changed as often as the fluctuations of the market made 
it necessary ; sometimes every day and sometimes less often. The new 
prices always went into eflFect on the morning of the day succeeding 
the issuance of the cards, and never on the same day. In said manner 
and by said method uniformity of prices was maintained among the 
members of said association and other regular dealers over the State. 
Regular dealers were those who were in harmony with the purpose 
and objects of said association." 

Through agreements of the kind described, competition 
in country grain buying had become practically non- 
existent in very many places. Such conditions prevailing, 
it is not surprising that the grain growers in many localities 
resorted to building and operating grain elevators them- 
selves. Nor is it surprising that their ventures frequently 
ended in failure, for the elevator companies that they 
organized became the object of special attack by the estab- 
lished grain dealers. 

At times the farmers experienced considerable difficulty 
in securing sites on which to build their elevators,^^ because 
the railroads refused this privilege, offering as a reason 
for refusal that elevator facilities were already sufficient 
for the volume of grain to be handled at the local stations. 

A cooperative company once established, a favorite and 
com^mon method resorted to by the line companies and inde- 
pendent dealers of bringing about the company's failure 
consisted in temporarily bidding a higher price for grain 
than the market would warrant.^^ The object in view was 
of course to create dissatisfaction among the members of 
the cooperative company. Tempted by the prospect of im- 
mediate gain from the higher prices paid by competing 
dealers and thinking that their quantity of grain contrib- 
uted to their o^vn company could not materially affect its 
fortunes, members very frequently disposed of their grain 
at the elevators of competing dealers,^^ and thus they di- 



34 Sen. Doc. Loc. cit. pp. 43, 496-502, 515, 648. 

35 Opus cit. pp. 498, 651. 

36 Ibidem, 



HISTORI€AL SURVEY OF COOPERATIVE MARKETING 21 

rectly contributed to the more complete control of the latter 
and indirectly brought financial disaster to their own con- 
cerns. Hence, any cooperative company which could hope 
to achieve success in face of the destructive competition of 
the grain dealers who held the field would have to include 
some feature in its plan of organization which would insure 
the continued support of its members in spite of apparent 
better bargains at competing dealers. 

A plan of such "enforced loyalty" had been devised as 
early as 1889, by the farmers living near the village of 
Rockwell, Cerro Gordo County, lowa.^^ This protective 
measure consisted in a so-called "penalty clause," which 
they embodied in the by-laws of their organization. The 
clause provided that any member of the company who sold 
his grain to any other dealer would have to pay one-half 
cent per bushel to the company for every bushel sold in this 
way. It was figured that this rate of assessment in relation 
to the volume of grain to be marketed by the company 
would be sufficient to maintain the elevator on a paying 
basis regardless of whether the members would dispose of 
their grain at their own elevator or at that of a rival dealer. 
The results to be achieved by this clause are comprehen- 
sively stated by Mr. Refsell in an article contributed to the 
Journal of Political Economy.^® "Under this arrangement 
the farmers' company would not be tempted greatly to bid 
a high price against its competitor when doing so would 
involve a loss. Neither could the company be ruined by the 
high price paid by a competitor, even though these prices 
would prevent the farmers' company from procuring the 
grain. The income would still be the same as before, while 
its expenses would be slightly decreased. In reality, its 
condition would be improved by its being outbid by its com- 
petitor for the grain marketed by its own members." 

With this penalty clause as its principal weapon, the co- 
operative elevator company at Rockwell entered upon the 
struggle against the firmly entrenched grain dealers. The 



3'^ Brochure entitled. Brief History of the Farmers' Cooperative Grain 
Dealers' Association of lozva, issued by the Association. 
38 Vol. 22, p. 891 (Nov., 1914). 



22 THE COOPERATIVE ELEVATOR MOVEMENT 

battle ensuing waxed into a very spirited contest. Every 
form of competition was brought to bear upon the company, 
but to no avail. Filled with determination and willing to 
impose upon themselves the assessment of one-half cent per 
bushel for the sake of insuring their own interests, the 
farmers of Rockwell emerged victorious from the conflict. 

The penalty clause was destined to play an important 
role in the further development of the cooperative elevator 
movement. The resistance offered the farmers at Rockwell 
had been so great, however, that farmers generally were 
not anxious to enter upon a similar struggle. The move- 
ment apparently made very little progress in the States of 
Nebraska, Illinois, and Kansas before 1900, and in Iowa it 
seems there were no companies formed during the decade 
of the nineties. Gradually, however, here and there the 
grain growers began to organize companies, so that at the 
beginning of 1903 there were seven companies in Iowa and 
15 in Illinois,^^ some of which probably embodied the pen- 
alty clause in their by-laws.^*^ Within one year, the com- 
panies of Illinois had increased to ninety and those of Iowa 
to thirty.^^ 

A number of local companies once established, their 
union into state associations readily suggested itself. The 
farmers began to realize as never before that combination 
could be met successfully only by combination. They felt 
above all a more thiorough coordination of their activities 
to be an increasing need, if their companies were to survive, 
not to speak of becoming powerful and successful. This 
coordination of activities was to be secured through state 
associations. 

Early in the spring of 1901, a convention was called by 
the grain growers of Kansas for the purpose of formu- 
lating a plan of action against existing abuses in grain 
buying,*^ \y^i the plan formulated did not embody the f ound- 



41 See Table I in this Chapter, p. 34. 

^^ The penalty clause seems not to have come into general use until 
about the middle of 1904. See Sen. Doc. Loc. cit. p. 647. 
44 See Table I in this Chapter, p. 34. 

42 C. Matson, A Grain Buyers' Trust, in "American Review of Reviews," 
p. 201, Vol. 25 (Feb., 1902). 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 23 

ing of a state association. The first farmers' state grain 
dealers* association was organized in Illinois, on February 
19, 1903.*^ In November of the following year, a similar 
organization was founded by the companies of Iowa with 
the assistance of representatives of the Association of 
Illinois.** 

These two associations, together with representatives of 
a few commission firms that were kindly disposed toward 
the cooperative companies,*^ now entered upon an energetic 
campaign of establishing new companies. Within two 
years, notable advances had been made. In Illinois the 
number of cooperative companies had increased from 15 in 
1903 to 125 at the beginning of 1905; in Iowa within the 
same period the number had increased from 7 to 78. 

In the meantime the line companies and the independent 
dealers were becoming somewhat alarmed at the progress 
the cooperative elevator movement was making. The old 
practice of increasing prices temporarily at a country sta- 
tion where a new company was organized proved no longer 
effective because of the penalty clause, which apparently 
most of the companies embodied in their by-laws.*^ 

To show how the penalty clause in some places was grad- 
ually curbing the practice of raising prices at a country 
station when a cooperative company was begun, reference 
is made to the incident cited by Mr. Matson in an article 
contributed to the Review of Reviews.*'^ The grain growers 
of Solomon, Kansas, had organized an elevator company 
with the penalty clause as a feature of the plan. Soon 



*3 W. M. Stickney, Grain Growers Reduce the Cost of Distribution, in 
"Annals of the American Academy of Political and Social Science," p. 
203, Vol. 50. 

** Brochure, entitled, Brief History of the Farmers' Cooperative Grain 
Dealers' Association of Iowa, issued by the Association. 

45 As will presently appear, the commission firms in the terminal mar- 
kets were being prevailed upon to refrain from doing business with the 
cooperatives. Those firms refusing to comply with this demand, thereupon 
found their interests tied up with those of the cooperative companies. 
Having once cast their lot with the latter, not only charitable, but also 
business motives counselled active participation in strengthening the exist- 
ing companies and helping to form new ones. 

*® About 75 per cent of the companies of Iowa employed a penalty 
clause. Sen. Doc. Loc. cit, p. 646. 

47 Vol. 25, p. 203 (Feb., 1902). 



24 THE COOPERATIVE ELEVATOR MOVEMENT 

after the cooperative elevator was opened, the price for 
grain was advanced by the line elevator company to a point 
which should make the members of the cooperative com- 
pany dissatisfied with the price they were receiving at their 
own elevator. The line companies had been paying 48 
cents per bushel for wheat, but the line elevator operating 
at Solomon ordered the price to be advanced to 55 cents per 
bushel. The cooperative company was paying only 52 
cents per bushel. Instead of attempting to meet the ad- 
vance in price, the manager weighed the grain that the 
members brought, and they in turn sold it to the line com- 
pany. Afterwards they returned to their own elevator and 
deposited one cent for every bushel they had sold, one cent 
per bushel being the rate of assessment prevailing in this 
company. This one cent per bushel was sufficient to main- 
tain the expenses of the elevator besides affording a little 
profit. Thus the line company, while seeking to undo the 
cooperative company, was in fact contributing toward the 
latter's success. Mr. Matson records the outcome of the 
contest thus: 'The attempt v^^as soon given up, and at the 
end of three weeks the syndicate had locked its elevator 
and gone out of business at Solomon." 

As this incident might lead one to suspect and as the 
course of events showed, the penalty clause was becoming 
an effective measure against any arbitrary setting of prices 
to be paid for grain at country stations. But a different 
method of attack was now launched in the Middlewestern 
territory. Through their State Grain Dealers' Associa- 
tions, the line companies and independent dealers informed 
commission firms in the terminal markets that the coopera- 
tive companies were "irregular dealers," and that firms 
handling the shipments of such dealers could expect no 
patronage from the regular dealers, namely, those that were 
members of the State Grain Dealers' Associations or that 
were in harmony with their objects. 

Commission firms that persisted in handling the ship- 
ments of the cooperative companies soon found their volume 
of business decreasing at an alarming rate.*® As a conse- 



*8 Sen. Doc. Loc. cit. pp. 646, 666, 672, 678. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 25 

quence, most of them acceded to the demands of the asso- 
ciations and refused to accept consignments from the co- 
operatives. In Chicago, the threat of the grain dealers' 
associations became so effective toward the beginning of 
1903 that there were only two commission firms in the city 
that accepted grain from the cooperatives. These two firms 
were Lowell, Hoit & Co. and Eschenburg & Dalton.*^ They 
occupied a very pivotal position in the fate and fortune of 
the cooperative elevator movement. Could they have been 
induced to withdraw their patronage, the movement in the 
Middlev/est would necessarily have broken down tempo- 
rarily. But having once refused to accede to the demands 
of the State Grain Dealers' Associations, they assisted the 
cooperative movement in every way possible, sending their 
own representatives to help organize new companies.^^ 

Special effort was made by the State Grain Dealers' 
Associations to win over the firm of Lowell, Hoit & Co. 
This commission firm, like the others, had been requested 
to refrain from accepting grain from the cooperative com- 
panies, but as already indicated it refused to comply with 
the request. A more insidious form of attack was now 
resorted to in order to win over this firm also. During the 
investigation of the Interstate Commerce Commission, a 
circular letter was presented, dated August 31, 1904, 
signed by Mr. George A. Wells, then Secretary of the Iowa 
State Grain Dealers' Association, and addressed to "The 
Members," and this letter requested them to correspond 
with Lov/ell, Hoit & Co., with a view to giving them ship- 
ments. To quote directly from the letter : 

"My purpose is to thus place them under sufficient obligation to the 
members of this Association, so that they will consider it for their 
best interest to confine their dealings in the future to the firms that 
are recognized, 

"Do not raise the question about the Farmers' Elevator Companies 
in your first letter, but take that up with them later, after having given 
them some business. Please, keep this matter confidential and advise 
me of your action and results." ^'^ 



*^ Loc. cit. p. 646. 

^'^ See Report of the Federal Trade Commission, Loc cit. p. 90. 
^1 Interstate Commerce Commission, Docket 875, Vol. II, 1906. Quoted 
also in Sen. Doc. Loc. cit. p. 667. 



26 THE COOPERATIVE ELEVATOR MOVEMENT 

The method adopted by the grain dealers' associations of 
winning over commission firms consisted not so much in 
assuming an attitude of opposition to the cooperative ele- 
vator com.panies in general, but only to those which had the 
penalty clause in their by-laws. Thus, in a letter dated 
August 17, 1904, Mr. Wells enumerated several companies 
not recognized by the Iowa Grain Dealers' Association "for 
the reason that they are organized on the Rockw^ell plan of 
making assessments." °^ In this way a few companies were 
induced to eliminate the clause, and also to become members 
of the state association. ^=^ 

While the threatened and actual boycott of commission 
firms no doubt was a serious temporary obstacle to the co- 
operative companies and materially hindered the general 
progress of the movement for some time, nevertheless, the 
boycott could not be universally enforced. A few commis- 
sion firms continued to accept shipments from them, nor did 
they discriminate against those that were organized "on the 
Rockwell plan of making assessments." 

The grain dealers' associations realized, however, that it 
was this plan of making assessments, or, in other words, 
the penalty clause, which in a large measure accounted for 
the success of the cooperative companies. It was felt that 
after all if this clause could be eliminated, the progress of 
the movement might yet be stayed. The possibility of hav- 
ing the clause eliminated through a decision of the courts 
still remained open. 

It should be remembered that the reason advanced by 
the grain dealers' associations for their opposition to the 
clause was their conviction that the clause was illegal. Mr. 
Wells, in testifying before the Interstate Commerce Com- 
mission, submitted a list of dealers recognized by the Iowa 
Grain Dealers' Association, and from this list were excluded 
the companies "who conduct their business according to the 
penalty clause plan, which plan according to the best legal 



52 Interstate Commerce Commission, Docket 875, Vol. II, 1906. Quoted 
also in Sen. Doc. Loc. cit. p. 668. 

53 Sen. Doc. Loc. cit, p. 647. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 27 

advice we can obtain is illegal." ^- It was declared that a 
company operating under the penalty clause was collecting 
penalties or assessments from those who were not selling 
grain to it and that these penalties were providing part of 
the expenses of operating the elevator. In consequence 
such a company buying grain would not have to buy it at 
a margin sufficiently wide out of which to pay operating 
expenses, while its competitor would have to pay a price 
higher than the market would warrant. Such, however, 
was not the view presented by the proponents of the co- 
operative movement. Mr. Messerole, then Secretary of the 
Iowa Farmers' Grain Dealers' Association, and editor of 
the American Cooperative Journal, offered the following 
in defense of the clause : 

"No sooner did this farmers' elevator come into existence than efforts 
were made by this powerful combination to disrupt these companies and 
rid themselves of this competition by paying a higher price to the members 
than the market would afford. As a result of this we have the penalty 
clause. . . . It is not in restraint of trade, because it has not been 
against public interest. A competitor is a ntiddlnnan and not the public. 
This is the openly expressed opinion of Judge Cochran of the circuit court 
of Monticcllo, 111." =5 

The clause was brought before the circuit court of Monti- 
cello, 111., toward the end of 1911. Suit was brought against 
The Farmers' Grain Company, alleging that the penalty 
clause embodied in its by-laws was against public policy 
and implied a restraint of trade. Judge Cochran, who 
heard the case, did not sustain the charge for the reason 
already advanced.-^® 

The legal status of the penalty clause has not been defi- 
nitely settled. Suit was brought in 1913 against a local live- 
stock shipping association in Iowa, which tried to enforce 
such a clause. The Supreme Court permanently enjoined 



^^ Interstate Commerce Commission, Docket 875, Vol. II. 1906. Quoted 
also in Sen. Doc. Loc. cit. 658. 

^^ Interstate Commerce Commission, Docket 875, Vol. II, 1906. Quoted 
also in Sen. Doc. Loc. cit. p. 651. 

^^ American Cooperative Journal, Vol. VII, p. 342. 



28 THE COOPERATIVE ELEVATOR MOVEMENT 

the association from enforcing it because the court consid- 
ered it to be in restraint of trade.^' 

The cooperative elevator companies soon enlarged their 
activities so as to include the handling of coal, lumber, and 
other farm supplies. They encountered considerable diffi- 
culty at first in this regard, in as far as wholesalers in these 
commodities refused to sell to them,^® fearing that they 
would be boycotted by the retail dealers. This seems to 
have been true especially in regard to coal, a commodity 
which most of the companies handled.^^ But this difficulty 
did not present a serious obstacle to the progress of the 
cooperative movement. 

All the various forms of attack directed against these 
companies failed of their primary purpose. In fact, they 
had the very opposite effect. The policy of opposition, as 
the Federal Trade Commission says in its recent Report 
on the Grain Trade, was from every angle a short-sighted 
and mistaken one.^^ "There is every reason to believe that 
it greatly stimulated the development of the cooperatives, 
for in the action taken by the regular elevators to suppress 
the movement the farmers undoubtedly saw the confirma- 
tion of all, and in fact more than all, that they believed 
as to prices that were paid for grain by the existing ele- 
vator concerns, and as to their methods and practices in 
general." ^^ No doubt much of the progress of the move- 
ment, especially within more recent years, has been due 
also to the assistance given the local companies by the grain 
dealers' associations and kindred organizations, which the 
farmers founded for the promotion of their common in- 



^' Reeves v. Decorah Farmers' Cooperative Society, 140 N. W., 844, 
Among the cooperative elevator companies, the clause has gone out of use 
almost entirely. A considerable number of them perhaps have it still in 
their by-laws, but they rarely if ever attempt to enforce it, and the advisa- 
bility of its use as a coercive measure compelling members to sell their 
grain to their own company is seriously questioned. 

^58 Brief History of the Farmers Cooperative Grain Dealers Association 
of Iowa, issued by the Association; O. N. Refsell, Opus cit. p. 984-5. 

5^ Ibidem. 

60 Vol. I, p. 91. 

61 Ibidem. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 29 

terests. But whatever the precise reasons influencing the 
grain growers of a locality in each particular instance to 
organize, the fact remains that the cooperative elevator 
movement has continued to spread at an increasing rate, 
and today is strongly represented in all of the North Cen- 
tral States, and even beyond.^^ 

Knowledge of the increase in the number of companies 
from year to year and the gradual spread of the movement 
to all of the North Central States may be gleaned from the 
accompanying tables. Mr. Refsell has shown this increase 
in number and spread in area for the period from 1903- 
1913.^^ Table I reproduces the results of his investigation. 
The table has, however, been slightly altered in as far as 
supplementary data have been included which recent sur- 
veys have made available. The number 30 has been in- 
cluded for Minnesota for the years 1903-1905, since it is 
learned from a survey conducted in that State in 1916 that 
there were then 30 companies which had been organized 
prior to 1900.^* Similarly, from a survey conducted in 
Ohio, information is at hand for years prior to 1913, which 
Mr. Refsell does not include.^^ A number which is very 
probably incorrect is the one which Mr. Refsell cites for 
Kansas for 1913. Thirty-two, which is the figure he cites, 
represents the companies that were affiliated with the 
Farmers* Grain Dealers* Association,^^ but the actual num- 
ber of companies in the State at the time was no doubt 
considerably greater. This view is confirmed by the fact 
that in 1914 there were 149 companies in Kansas, which 
would represent an abnormal increase in number. 



®2 There are many cooperative elevator companies in other States, espe- 
cially in Montana, Oklahoma, and Colorado. American Cooperative Journal, 
passim. Cf. Report of the Federal Trade Commission, Loc. cit. p. 92. 

®^ The Farmers' Elevator Movement, in "Journal of Political Economy," 
Vol. 22, p. 987 (Dec, 1914). 

«* Durand and Jansen, Opus cit. p. 9. 

®5 Erdman, Opus cit. p. 141. 

^^ American Cooperative Journal, Vol. VIII, No. 8, p. 670 (April, 1913). 



30 



THE COOPERATIVE ELEVATOR MOVEMENT 



Table I — Showing the number of cooperative elevator com- 
panies in different states, 1903-1913 *' 



STATE 


1903 


1904|1905 


1906 


1907 1908 1909 1910 1911 1912|1913 


Illinois .... . . . . 


15 

7 

30 


90 


17S 


125 
175 
1 
150 
85 
100 


150 170! 170l 225 300 300 


300 


Iowa .... 


30 78 

1 1 

30 .^0 


200: 209 


250! 3001 324 


347 
19 
277 
350 
220 
200 


347 


Ohio 


2 

168 

85 

100 


2 

178 

85 

100 

140 


3 

205 

85 

150 

160 


4 

224 

85 

200 

?00 


7 
240 
300 
200 
200 


19 


Minnesota 


307 


North Dakota 

South Dakota 

Nebraska 






350 

220 

200 

3? 


Kansas 








Total 


s? 


1S1 


?U 


6S6 


705 


884 1023 1238 


1571 1713 


1775 



























Since 1913 the movement has spread rapidly, not only 
within the States for which statistics have just been cited, 
but in all the North Central States. To show the compara- 
tive growth of the movement within this area, statistics 
have been gathered for the period from 1913-1921. Table 
II reproduces the results of this investigation. In reading 
the table it should be remembered that the figures adduced 
represent approximately the number of companies and not 
the number of elevators owned by them. The number of 
elevators exceeds somewhat the number of companies, since 
some of the companies operate more than one elevator.^^ 



6s The Federal Trade Commission in its Report on the Grain Trade dis- 
tinguishes between two kinds of cooperative elevator companies, namely, the 
individual and the line. Under cooperative line companies it classes those 
which own and operate more than one elevator. That the number of co- 
operative line companies and the elevators owned by them, is compara- 
tively small, may be gleaned from the fact that the elevators reporting un- 
der this class, constituted only 1.06 per cent of the total number of all 
types of elevators reporting to the Commission, while the individual co- 
operative companies, namely, those owning and operating but one elevator 
constituted 18.4 per cent. Vol. I, p. 328. The cooperative line companies 
are found chiefly in Illinois, South Dakota, and Kansas, judging from the 
comparative number reporting from the different States. Ibidem. Mr. 
Millard Myers, the editor of the American Cooperative Journal, gives it as 
a personal opinion that the number of elevators exceeds the number of 
companies probably by 10 per cent. 

^"^ Mr, Ref sell adds the following as an explanatory footnote : "The 
figures in the table are not in all cases strictly correct but approximately 
so. Accurate statistics are not available. In cases where the figures for a 
given year are missing, the figures for the preceding year have been in- 
serted. The table is compiled from reports of annual meetings of state 
associations, as published in the American Cooperative Journal." 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 



31 



Table II — Showing the growth of the cooperative elevator 
movement in the North Central States, 1913-1921 ^^ 



STATE 



Iowa 

North Dakota. . . . 

Illinois 

Minnesota (70) 

South Dakota (71) 

Nebraska 

Kansas (73) 

Ohio (73) 

Indiana (74) 

Wisconsin (75) . . . . 

Missouri (76) 

Michigan (77) 



1914 



350 

350] 

300 

270 

220 

200 

149 

35 

25 

19 

13 

11 



1915 



360 

400 

300 

278 

220 

230 

200 

48 

45 

19 

13 

11 



1916 



387 

425 

300 

299 

240 

247 

242 

73 

45 

19 

13 

11 



1917 



433 

450 

327 

331 

250 

326 

242 

90 

60 

19 

13 

11 



1918 



450 

500 

351 

360 

306 

353 

368 

93 

60 

98 

13 

11 



1919 



467 

530 

409 

385 

306 

391 

400 

140 

100 

98 

13 

11 



1920 



525 

550 

495 

420 

326 

462 

500 

300 

149 

98 

72 

75 



1921 



637 

551 

607 

428 

329 

494 

572 

324 

225 

88 

98 

89 



Total . 



1942 2124 2301 2552 2963 3250 3972 4442 



At the beginning of 1914 the Office of Markets and Rural 
Organization of the U. S. Department of Agriculture under- 
took a survey of all cooperative marketing and purchasing 
associations among the farmers of the United States.'^ 



®^ The un-annotated figures in this table are derived from three sources : 
Reports presented at the annual conventions by the Secretaries of the 
Farmers' State Grain Dealers' Associations, as published in the American 
Cooperative Journal, the official organ of the movement ; reports of the 
State Secretaries to the writer in which they supplement or revise the 
annual reports ; miscellaneous reports now and then published in the 
American Cooperative Journal. 

These figures represent approximately the number of companies at the 
beginning of the year in which they are listed. Sometimes the annual 
conventions are held late in autumn. In these instances the figures have 
been carried forward to the following year. In all cases where figures for 
the succeeding year could not be obtained, those of the preceding have been 
inserted. 

^0 For the years 1914 and 1915, the figures are taken from L. D. Weld, 
Opus cit. p. 6; for the years, 1916-19, from Black and Robotka, Opus cit. 23. 

^1 For the year 1914, the figures are taken from O. B. Jesness and W. H. 
Kerr, Opus cit. p. 16. 

72 For the years, 1914-18, the figures are taken from H. E. Erdman, 
Opus cit. p. 141. 

'3 For the year 1914, the figures are taken from O. B. Jesness and W. H. 
Kerr, Opus cit. p. 16. 

'* For the year, 1914, ibidem; for the years, 1918-20. from Hibbard and 
Hobson, Cooperation in Wisconsin, p. 14, Bulletin 282, 1917, Agricultural 
Experiment Station. 

'5 For the years, 1914-17, the figures are taken from O. B. Jesness and 
W. H. Kerr, Opus cit. p. 16. 

'^ For the year, 1914, ibidem. 

'7 The results of the survey were published in the Bulletin of Jesness and 
Kerr, Opus cit. 



32 THE COOPERATIVE ELEVATOR MOVEMENT 

From this survey an estimate as to the number of partici- 
pants in the movement may be arrived at. The average 
membership of a cooperative elevator company, according 
to this survey, was 111.'^ Assuming the average of 1914 
to be the average mem.bership of a company in 1921, the 
total membership v/ould be 493,062."^^ From data received 
as to non-members doing busines with the 1,637 elevator 
companies reporting to the Office of Markets, it was esti- 
mated that their number would approximate 125,000.^'^ 
Preserving this basis of proportion, the number of non- 
members at least occasionally doing business with the 4,442 
cooperative elevator com.panies of the North Central States 
would approximate 333,000. 

The Office of Markets in its survey arrived at estimates 
also as to the volume of business transacted by the indi- 
vidual company. For the North Central States the average 
approximated $129,000.^^ This estimate, however, does not 
adequately reflect the volume of business in terms of money 
transacted at the present time, because the price level both 
for grain and other commodities handled by the cooperative 
elevator companies was considerably higher at the begin- 
ning of 1921 than in 1914, despite the recent decline in the 
prices of agricultural products. Thus, in Minnesota the 
average volume of business transacted by 278 companies 
in 1914 was $107,901,«2 while in 1918, when prices for 
grain and other commodities had increased very consider- 
ably, the average volume of business transacted by each 
company in that State was ?232,423.^^ This is even proba- 



"^8 The average for each of the North Central States was as follows : 
Illinois, 104; Indiana, 104; Iowa, 119; Kansas, 93; Michigan, 176; Minne- 
sota, 125; Missouri, 115; Nebraska, 99; North Dakota, 74; Ohio, 106; 
South Dakota, 98; Vyisconsin, 122. 

■^9 Total membership obtained by multiplying average by total number of 
companies. 

80 Loc. cit. p. 29. 

81 Average volume of business arrived at by dividing total volume by 12, 
the number of States in the North Central Group. 

82 L. D. Weld, Opus cit. p. 6. According to the estimates of the Ofl&ce 
of Markets, the average volume of business transacted by the companies in 
Minnesota, was $111,303. Opus cit. p. 18. 

83 Black and Robotka, Opus cit. p. 23. 



HISTORICAL SURVEY OF COOPERATIVE MARKETING 33 

bly a conservative estimate in view of the fact that the 
cooperative elevator companies of Minnesota in that year 
handled on the average only 125,571 bushels of grain, while 
according to the Federal Trade Commission the average 
annual volume of grain handled by each individual elevator 
company during the period 1914-18 amounted to 153,000 
bushels.^* 

To summarize briefly the present status of cooperative 
grain marketing at country points in the North Central 
States, as to the number of companies, membership, and 
volume of business, it may be said that approximately at 
the beginning of 1921 there were within that region 4,442 
cooperative companies, representing a membership of 
493,062 and a non-membership of 300,000 occasionally at 
least trading with these concerns, and transacting a total 
volume of business aggregating a billion dollars.^^ The 
structure and functions of these companies, as also the 
agencies assisting and promoting them, shall occupy the 
next two chapters. 



8* The elevators owned and operated by the cooperative line companies 
during that same period handled 136,825 bushels, a considerably higher 
average than that reported by the Minnesota survey for the individual co- 
operatives of that State. See Report on the Grain Trade, Vol. I, p. 117. 

85 Computed by assuming $232,423, the figure from the Minnesota survey 
quoted above, to be the average annual volume of business for an individual 
company. 



CHAPTER III 

The Structure and Functions of the Local Marketing 

Associations 

The fundamental unit of the cooperative elevator move- 
ment is the local company or association. Hence it is essen- 
tial to know the plan of organization of the local associa- 
tions and the scope of their activities in order to understand 
the movement as a whole. To present this twofold phase 
of the study is the aim of the present chapter. It will 
include a consideration of the various types of organization 
that have been adopted by the cooperative elevator com- 
panies. Questions dealing with the internal management 
of the local companies, such as incorporation, the provisions 
of by-laws, the volume of business, and the distribution of 
profits also naturally find a place in this chapter. There 
has furthermore been included a description of the U. S. 
Grain Growers, Inc., an organization recently formed and 
designed to serve as a terminal marketing agency for the 
local companies. 

In classifying the cooperative elevator companies of the 
North Central States into distinct types, it will perhaps be 
best to adopt their method of distributing profits as the 
basis of classification. Following this method, they may be 
divided into two general types, namely, those which dis- 
tribute profits after the manner of ordinary stock corpora- 
tions and those which distribute profits after the manner 
of true cooperative associations. But within each of these 
general types there are differences which demand that they 
be still further classified. 

Some of the companies are organized as ordinary stock 
corporations in all particulars. In these there is no limit 
to the number of shares a stockholder may own; voting 
power is in proportion to the amount of stock in which each 
person has invested; and all net earnings are distributed 
in the form of dividends on the invested capital. There 

35 



36 THE COOPERATIVE ELEVATOR MOVEMENT 

are, however, also many companies which, while they dis- 
tribute all net earnings in the form of dividends on the 
invested capital, have adopted certain cooperative charac- 
teristics in order to insure democratic management. Some 
of these companies adhere to the "one-man one-vote" prin- 
ciple, in virtue of which each member is allowed only one 
vote regardless of the amount of stock he may own in the 
enterprise, and still other companies follow also the other 
cooperative feature of setting a limitation upon the num- 
ber of shares of stock in which a person may invest. 

A few companies desirous of utilizing some of the ad- 
vantages of the corporate form of organization and at the 
same time of avoiding some of its disagreeable features, 
such as the formal procedure and fee connected with in- 
corporation, the payment of certain taxes levied upon them, 
and the filing of numerous reports, have organized them- 
selves as joint stock companies. In these the net earnings 
are distributed to each member in proportion to the amount 
of capital he has invested, but the partnership relation 
among the members is maintained, and therefore each 
member is usually liable, jointly and severally, for all of 
the company's obligations.^ 

The companies that are organized as true cooperative 
associations may be divided into two classes, namely, those 
organized with and those without capital stock. In the 
cooperative capital stock corporations, each member is 
allowed only one vote on all questions regardless of the 
amount of stock he may own in the enterprise ; a limitation 
is set upon the amount of stock he may own; and all net 
earnings, after the current or legal rate of interest has been 
allowed on the invested capital and other expenses have 
been provided for, are prorated to the members on the 
basis of the amount of business each one has transacted 
with the concern. 

In those companies that are organized as cooperative 
associations without capital stock, certificates of member- 
ship are issued instead of certificates of stock. The capital 
necessary to conduct the enterprise is secured through a 



1 Cf. J. M. Mehl and O. B. Jesness, Opus cit. p. 6. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 37 

membership fee, other assessments, and through loans. A 
reserve fund is set aside from which to repay these loans 
as they mature and to provide for interest, debts, losses, 
depreciation, and miscellaneous expenses. As in the co- 
operative companies with capital stock, the voting power of 
all the members is equal and all net earnings are prorated 
back to the members on the basis of the patronage that each 
has contributed to the enterprise. 

While all of the elevator companies described may be 
classed as cooperative in the sense that the benefits derived 
from these enterprises accrue for the most part to the 
patrons through their cooperative effort, benefits which 
would not have been secured from a private concern owned 
and operated for the sole purpose of making profits, still 
according to the strict definition of the term only those 
companies which have been designated as true cooperative 
associations can be called cooperative. Only those embody 
the features which are generally set down as essential be- 
fore an enterprise may call itself truly cooperative, and 
some of the state cooperative incorporation laws — as, for 
instance, those of Kansas, Nebraska, North and South Da- 
kota, and Wisconsin — prohibit a corporation from using 
the word cooperative in its name or title unless it be con- 
ducted in accordance with these provisions. 

What percentage of the elevator companies should be 
classed under each of the general types and under their sub- 
classes it is difficult to state with accuracy because of the 
lack of available statistics. Certain it is that at the begin- 
ning of 1914, when the Office of Markets and Rural Organi- 
zation of the U. S. Department of Agriculture made its 
survey of cooperative marketing associations, the vast ma- 
jority of the companies distributed their earnings as ordi- 
nary stock corporations. Out of a total of 1,440 companies 
reporting from the North Central States, 73.6 per cent 
distributed their profits in this manner.- But many of the 
companies had certain cooperative characteristics. To 
quote directly from the report: *ln all of them the stock 
is distributed among a number of farmers; in some there 



Jesness and Kerr, Opus cit. pp. 14-24, 27. 



38 THE COOPERATIVE ELEVATOR MOVEMENT 

is a limit to the number of shares of stock one person may 
own; often there are regulations in regard to the transfer 
of stock; and many of these organizations adhere to the 
'one-man one-vote* principle. There are m.any instances 
where the stock is distributed among farmers, few holding 
more than one share." ^ 

According to the same survey, 26.4 per cent of all com- 
panies reporting from the North Central States were truly 
cooperative in the sense that they distributed their profits 
on the basis of patronage.'* But almost all of these com- 
panies were cooperative capital stock associations as op- 
posed to cooperatives without capital stock. = 

The survey makes no mention of companies organized on 
the joint stock principle. Perhaps no com.panies of this 
t^-pe reported or the number of companies reporting was 
so small as not to make it worth while to place themx in a 
separate class. This form of organization has at no time 
been adopted to any notable extent by the cooperative ele- 
vator companies of the North Central States, and the rea- 
son for this is succinctly stated by Mehl and Jesness in 
their Bulletin on The Organization of Cooperative Grain 
Elevatar Companies: "The joint stock company is adapted 
principally to small and compact organizations which desire 
to utilize some of the features of corporations and still re- 
tain a partnership relation between the members. For 
organizations made up of a large number of mem.bers each 
having a comparatively small financial interest it is neither 
a convenient nor a desirable form, and for that reason it 
has not gained general favor in the farmers' elevator field." * 

Since 1914 the number of companies distributing their 
profits on the basis of patronage has increased relatively at 
a very rapid rate as compared with the companies that 
distribute them in the form of dividends on the invested 
capital stock. This appears from a comparison of the 
survey just referred to with that of the Federal Trade Com- 
mission, whose Report was made public on September 20, 
1920. 



3 Opus cit. p. 28. 

* Loc. cit. pp. 14-24. 27. 

5 Loc. cit. p. 27. 

6 Bulletin No. 860, U. S. Dept. of Agric. pp. 2. 3. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 39 



From the accompanying table, which is based upon these 
surveys, it is seen that out of a total of 1,440 companies 
reporting from the North Central States in 1914, only 26.4 
per cent of this number distributed their profits on the 
basis of patronage, while in 1919,^ out of a total of 1,074 
companies reporting,^ 61. X per cent distributed them on 
this basis. Iowa is the only State in which this type of 
company shows a relative decrease in number during the 
period between 1914 and the beginning of 1919, and Illinois 
is the only other State in which it does not represent 50 

Table — Showing relative increase in percentage of coopera- 
tive elevator companies paying patronage dividends in 
the North Central States, during the period 19H'1918, 
inclusive.^ 



STATE 


Total number reporting 


Percentage of total number 
paying patronage dividends. 


Illinois 

Iowa 


1914 

191 

210 

18 

25 

13 

219 

11 

29 

181 

134 

260 

149 


1918 

93 

142 

10 

19 

9 

164 

7 

27 

132 

140 

178 

153 


1914 
10.9 
50.9 
33.3 
32.0 
00.0 
42.9 
36.3 
00.0 
24.3 
21.6 
35.3 
30.2 


J918 
29.0 

35.2 


Wisconsin 

Indiana 

Missouri 

Minnesota 

Michigan 

Ohio 


50.0 

52.6 
55.5 
56.1 
57.1 
70.3 


Nebraska 

South Dakota. . 
North Dakota . 
Kansas 


76.5 
77.8 
81.4 
92.1 


Total 


1440 


1074 


26.4 


61.1 



' Although the Report of the Federal Trade Commission was not made 
public until Sept. 15, 1920, "the field work was practically closed at the end 
of 1918." Some field work, however, was done also during 1919 and 1920. 
"chiefly in the way of checking the results obtained and bringing material 
other than schedule matter up to date as nearly as possible." Hence the 
figures here adduced can be taken to reflect with fair accuracy the present 
status of the companies in this regard. Opus cit. Vol. I, p. 20. 

^ This number does not represent all of the companies then existing. 
See Table II, p. 35 of the preceding Chapter. Only this number an- 
swered the enquiry as to the payment of patronage dividends. The 
Report calls attention to the fact which may also be gleaned from 
the accompanying Table, that only a very small number of companies 
from some States answered the enquiry, and that therefore the re- 
sults arrived at for these States may not be quite representative. 
Ojm^ cit. pp. 92, 93. 

» The figures for 1914 are taken from Jesness and Kerr. Opus cit. pp. 
14-24. For the year 1918, from the Report of the Federal Trade Covimis- 
sion, Vol. I, p. 92. 



40 THE COOPERATIVE ELEVATOR MOVEMENT 

per cent of all the companies in the State in question. But 
also in Iowa and Illinois, the cooperative method of dis- 
tributing profits has been adopted almost without exception 
by the companies that have been formed within the last 
few years. Thus, the Secretary of the Illinois Farmers' 
Grain Dealers' Association reports that 58 new companies 
were organized during the year 1918, and that all of these 
had organized on this basis ; ^^ that during the year 1919 
eighty-six companies had been organized and eighty-five 
of these had adopted the cooperative plan.^^ Similarly, the 
Secretary of the Iowa Association reports that almost all 
of the companies are organizing on the cooperative basis,^^ 
and that very probably 50 per cent of the companies were 
cooperative at the beginning of 1921,^^ although he had no 
exact figures for his statement. In all of the North Central 
States the trend is very strong for all companies to organize 
on the patronage dividend plan. Many of the existing com- 
panies that have not as yet adopted this plan are reorgan- 
izing^* in order that they may do their business on this 
basis. 

It is fairly certain that almost all of the companies which 
distribute their profits on the basis of patronage are organ- 
ized as cooperative associations with capital stock. The 
cooperative non-stock association has not found favor with 
the grain grov/ers, although this form of organization is 
well adapted to make of the company a service institution 
for the community at large and not one operated for the 
benefit of the few. There are two reasons which have pre- 
vented this type of company from being extensively 
adopted. When the various legislatures of the North 
Central States first enacted laws authorizing cooperative 



1® American Cooperative Journal, Vol. 14, no. 7, p. 254. 
" Opus cit. Vol. 15, p. 22. 

12 Loc. cit. Vol. 14, p. 222. 

13 In letter to writer. 

1* See "American Cooperative Journal," passim, especially the annual re- 
ports of the State secretaries; Cf. Jesness, Cooperative Marketing, p. 10, 
Bulletin 1144, U. S. Dept. of Agric. (1920). 



.STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONSeJ* 41 

associations, they did not make specific provision for those 
without capital stock. Consequently the companies thus 
organized would have to forego the advantages of incor- 
poration, since they could not incorporate either as ordinary 
stock companies or as cooperative capital stock associa- 
tions. Incorporation, however, was generally very highly 
desired by those organizing a company, since in this way 
their financial obligations were definitely limited. But 
there is another reason more important why this type of 
organization has not found favor among the grain grov/ers. 
A cooperative elevator company requires a large amount 
of initial capital. The average company at the present time 
issues a capital stock approximating $20,000. Through 
experience the grain growers have found that the sale of 
shares of stock offers the most convenient method of pro- 
curing the necessary capital.^^ 

Cooperative non-stock associations enjoy, however, cer- 
tain privileges in Federal law which might have led to their 
more general adoption if similar privileges had not later 
been extended to the cooperative capital stock association. 
The first privilege to be referred to was granted in 1914, 
and is contained in the Clayton Amendment to the Sherman 
Anti-trust Law. Under this amendment, cooperative non- 
stock associations are exempted from the operation of the 
United States anti-trust laws. Section VI of this amend- 
ment reads in part: 

"Nothing contained in the anti-trust laws shall be construed to forbid 
the existence and operation of . . . agricultural . . . organizations, 
instituted for the purpose of mutual help, and not having capital stock or 
conducted for profit, or to restrain individual members of such organiza- 
tions from lawfully carrying out the legitimate objects thereof ; nor shall 
such organizations or the members thereof be held or construed to be 
illegal combinations or conspiracies in restraint of trade under the anti- 
trust laws." 

An extension of this privilege to the cooperative capital 
stock association was intended by the Capper-Hersman Bill, 
introduced in 1920 during the Sixty-sixth Congress. The 



i°J. M. Mehl and O. B. Jesness, Opus cit. p. 4; Cf. O. B. Tesness and 
W. H. Kerr, Opus cit. p. 78. 



42 THE COOPERATIVE ELEVATOR MOVEMENT 

bill provided that such organizations and their members 
would be exempt from the operation of the United States 
anti-trust laws, provided that no member of such associa- 
tions be allowed more than one vote regardless of the 
amount of stock he might own, and provided furthermore 
that the associations do not pay dividends on stock in excess 
of 8 per cent per annum. The bill was passed in the Lower 
House on May 31, 1920,^^ and in the Senate on December 
15, 1920,^' and the bill thereupon went back into conference, 
but because of differences among the conferees it failed to 
pass. It was reintroduced with slight modifications by 
Representative Volstead in the Lower House and by Sena- 
tor Capper in the Senate, and was passed in both houses 
by a large majority. It received the President's signature 
during the early part of February, 1922. 

Another privilege enjoyed by the cooperative non-stock 
associations in Federal law relates to the income tax. Ac- 
cording to the Revenue Act of 1917, elevator companies 
organized as cooperative non-stock associations could claim 
exemption from payment of the Federal income tax under 
the following clause, which specifically exempts — 

"Farmers' fruit growers' or like associations, organized and operated as 
sales agents for the purpose of marketing the products of members and 
turning back to them the proceeds, less necessary selling expenses, on the 
basis of the quantity of produce furnished by them." 

Under a strict interpretation of this clause, the elevator 
companies organized as cooperative stock associations 
could not claim exemption under this clause because they 
have a capital stock, and furthermore do not turn back all 
the proceeds of sales to their members on the basis of the 
quantity of produce furnished by then!. Part of the earn- 
ings are returned to the members on the basis of invested 
capital stock; that is, all the invested capital stock receives 
a fixed rate of dividend. However, under the Revenue Act 
of 1918, companies organized as cooperative stock associa- 
tions received their desired status. The wording of the 
exemption was not changed, but according to Regulations 



^^Cong. Rec. Vol. 59, No. 149, Sixty-sixth Cong. 2d sess. p. 8606. 
'^^Cong. Rec. Vol. 60, No. 9. Sixty-sixth Cong. 3d sess., p. 381. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 43 

^5/^ "A corporation organized to act as a sales agent for 
farmers and having a capital stock on which it pays a fixed 
dividend amounting to the legal rate of interest, all of the 
capital stock being owned by such owners, will not for that 
reason be denied exemption." ^^ 

Most of the cooperative elevator companies handle a 
variety of commodities besides grain, and thus they act 
also as purchasing agents for their members. The follow- 
ing regulation applies to them in this regard : 

"Cooperative associations acting as purchasing agents are not expressly 
exempt from tax and must make returns of income, but rebates made to 
purchasers, whether or not members of the association, in proportion to 
their purchases may be excluded from gross income in computing the net 
income subject to tax." 20 

But "any profits made from non-members and distrib- 
uted to members in the guise of rebates are, of course, 
subject to tax.21 

The extension of this privilege to the cooperative stock 
association and on the other hand, the specific provision that 
"if the proceeds of the businss are distributed in any other 
way than on such a proportionate basis, the company will 
be subject to tax,"22 will have a strong tendency for com- 
panies to organize as cooperative associations. This privi- 
lege no doubt accounts to a large extent for the recent in- 
crease in this type of company. 

The present trend of the movement is such as to indi- 
cate clearly that the relative increase in the number of 
companies organized as cooperative stock associations will 
continue to be far more rapid than the increase of those 
which embody only one or the other truly cooperative char- 
acteristic, such as the equality of voting power and the 
limitation of stock ownership. The increasing number 
of companies which have organized on the former plan 
within recent years points to the fact that the grain 



18 The full title is, Regulations 45 Relating to the Income Tax and War 
Profits and Excess Profits Tax under the Revenue Act of 1918. 
^^Opus cit. p. 159 (1920 edit.). 

20 Ibidem. 

21 Loc. cit. p. 160. 

22 Loc. cit. p. 159. 



44 THE COOPERATIVE ELEVATOR MOVEMENT 

growers are looking upon that plan as the best designed 
to accomplish the purpose a cooperative elevator company- 
should serve, namely, that of an advantageous marketing 
agency for the community. The ability to incorporate 
under the state laws specifically enacted for this type of 
organization, the privileges granted to it in Federal law, 
the disadvantages and inconveniences attaching to the other 
types of organization, are all factors which will tend to 
make the cooperative stock corporation the predominating 
type according to which the cooperative elevator compan- 
ies will organize in the future. Those entrusted with the 
general direction of the cooperative elevator movement, 
also favor the cooperative stock corporation, and their 
influence will be an important factor in its universal adop- 
tion. ^^ Thus, the secretaries of the Farmers* State Grain 
Dealers* Associations, especially of those which employ 
secretaries that are to devote their full time to the asso- 
ciation, are in a position to help those wishing to organize 
a company. Similarly, the American Cooperative Journal, 
the official organ of the movement, and also the Journals 
of such rural organizations, as the Farmers' Union, the So- 
ciety of Equity, and the Equity Union, will exert an impor- 
tant influence in the same direction. 

While there are undoubtedly few companies that will 
organize on any other basis except on that just described, 
there are, however, several obstacles which are preventing 
some of the present non-cooperative companies from re- 
organizing on a strictly cooperative basis. These obstacles 
arise chiefly from the circumstances under which these 
companies were formed. Some of them date back to a 
time when those who invested their money in an elevator 
company, did so with a large amount of risk. They are 
naturally inclined to the view that they ought to receive 
profits in accordance with the amount of their investment. 
Some of the companies were organized with the financial 



23 As a summary proof that the leaders in the movement favor the co- 
operative stock corporation, we refer to the set of by-laws which the U. S. 
Department of Agriculture drafted in conjunction with the Secretaries of 
the Farmers' State Grain Dealers' Associations, and which demands the co- 
operative capital stock plan. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 45 

aid of local business men, such as bankers and merchants. 
They naturally oppose the plan of profits being distributed 
according to the amount of business transacted with the 
company since they have no business to transact with it in 
the nature of marketing grain. Some of the farmers are 
opposed to the plan likewise because the have large 
amounts of capital invested in the enterprise, and will, 
therefore, receive larger profits if these be distributed in 
the form of dividends on stock. Especially are they in- 
clined to think in this way if they invested their money 
in the enterprise at a time when they did so with a large 
amount of risk and when others refused to invest precisely 
because of the attending financial hazards. Thus, it is 
sometimes impossible or at least difficult to reorganize 
a company on the cooperative plan because of a few dis- 
senting stockholders. But as Mehl and Jesness in their 
Bulletin remark: "No serious difficulties are usually en- 
countered, since most of the stockholders who are inclined 
to dissent realize that they cannot control against a major- 
ity of the members and that they will fare better to accept 
the terms offered than to have a new company organized, 
the old organization abandoned, and its property brought 
to a forced sale in dissolution proceedings." ^^ 

A factor recently entering the cooperative elevator move- 
ment, which will tend to exercise a strong influence for 
companies to reorganize on a truly cooperative basis and 
for new companies to adopt this method, is the U. S. Grain 
Growers, Inc. The local elevator companies are intended 
to become fundamental and affiliated units, and one of 
the requirements that they must meet in aflfiliation, is that 
they be organized on the truly cooperative basis. 

It may be seen, therefore, from the foregoing discussion, 
that there are very few companies organized as non-stock 
cooperative associations or as joint stock companies; that 
almost all of them embody at least one or the other truly 
cooperative feature; and that the present tendency for all 
companies to organize as true cooperative associations is 



24 Opus cit. p. 25. For methods of reorganization, see same Bulletin, pp. 
24-26. 



46 THE COOPERATIVE ELEVATOR MOVEMENT 

SO pronounced as within a few years to make the number 
of companies organized on any other basis, relatively in- 
significant. 

One of the first steps in organizing a cooperative com- 
pany -^ is its incorporation under the laws of the State in 
which it is formed. Incorporation secures for the com- 
pany a distinct legal status in all its transactions and re- 
lations.^^ 

A set of by-laws is always drawn up, which outline the 
working plan of the company. They generally deal with 
the following items: name; object; membership; directors 
and officers; their rights and duties; rights and duties of 
the manager; amount of stock that can be held by each 
member and rules governing its transfer; indebtedness 
and liabilities; distribution of earnings; quorum and 
amendments. Care must alwas be taken that the by-laws 
be not in conflict with the provisions of the incorporation 
law of the state in which the company is formed. ^^ 

In former days the ^'penalty clause" was an important 
feature of the by-laws. While perhaps many companies 
still have it in their by-laws, they rarely if ever attempt 
to enforce it. As early as 1913, the clause had become 
of relatively little importance in many places. Professor 
Weld found that in that year in Minnesota, out of 166 
companies only thirty-two, or 19.3 per cent, had a penalty 
clause in their by-laws and only two had used it.^^ At the 
present time the clause is no longer enforced. Not only 
is the clause doubtful legally ,^^ but its usefulness as a means 
of insuring the support of the members to the organiza- 
tion is seriously questioned. As a coercive measure it has 



25 For a fairly detailed description of the method to be followed and the 
precautions to be taken in organizing a company, the reader is referred to 
J. M. Mehl and O. B. Jesness, Opus cit. pp. 1-22. 

26 See Form of Incorporation at the end of the treatise, Appendix A. 

27 See form of by-laws at end of treatise, Appendix B, The reader is 
also referred to the work of Mehl and Jesness quoted above, which contains 
a set of by-laws prepared by the Bureau of Markets of the U. S. Depart- 
ment of Agriculture in conjunction with the Secretaries of the Farmers' 
State Grain Dealers' Associations. 

28 Opus cit. p. 8. 

"See preceding Chapter, p. 32. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 47 

frequently only tended to antagonize the members.^^ Those 
entrusted with the organizing of new companies urge the 
adoption of the cooperative plan as the most effective sub- 
stitute to guarantee the loyalty of the members.-^^ 

There is a great variation in the number of members 
comprising a company. While the average number is 
about 110,^^ there are many companies in which the mem- 
bership is considerably higher and others in which it is 
very much lower. Some companies have a membership as 
high as 400 and others not as high as 15.^^ While the mem- 
bership is as a rule for the greater part composed of farm- 
ers, not infrequently local merchants or business men 
own a few shares of stock. Provision is generally made 
in the by-laws whereby undesirable persons may be ex- 
cluded. This provision is so framed as to allow only those 
to become members who have been recommended by the 
board of directors or who have received the approval of 
the majority of the stockholders.^^ 

The general conduct of the business is vested in a board 
of directors, usually seven in number. The officers of 
the board are a president, vice-president, secretary, and 
treasurer.^^ The members of the first board of directors 
hold office for one year, that is, until the first annual meet- 
ing. The members to succeed them are generally elected 
for a term of office as follows :^^ three are elected for a term 
of one year; two for a term of two years; and two for a 



^^ Mehl and Jesness, Opus cit. p. 29. 

^1 Cf . American Cooperative Journal, Vol. 12, p, 450 (Feb., 1917). 

32 See preceding Chapter, p. 36. 

33 Professor Weld in his survey referred to above, found that one com- 
pany had 600 members, one 500, and two 400. The number of persons 
comprising a company may be still higher since both the State laws author- 
izing corporations or also cooperative associations, set no maximum as to 
the number of persons that may form an association. The number may 
also be smaller than fifteen, since in most states, the laws authorizing co- 
operative associations, fix the minimum at five. The cooperative incorpora- 
tion laws of Nebraska and Indiana place the minimum at 25, while the one 
of Kansas places it at 20. These States are the only ones that require 
more than 10. 

3* See Appendix B at end of treatise, Art. IV, Sec. 3. 

35 Sometimes the office of secretary and treasurer is held by the same 
person. 

36 That is, when the number of directors is to be seven. 



48 THE COOPERATIVE ELEVATOR MOVEMENT 

term of three years. Upon the expiration of the terms of 
the directors so elected, their successors are elected for 
a term generally of three years, but sometimes also for 
only one year. The most important single duty of the 
board of directors is to choose the manager of the com- 
pany, for upon this choice in a large measure will depend 
the success of the company. 

The amount of grain handled annually by an individual 
company varies greatly, depending upon a number of 
factors, such as the amount of grain grown in the particu- 
lar locality, the amount of grain used for feeding, the 
facilities of transportation, the number of competitors, and 
the number of members comprising the company. Accord- 
ing to the average arrived at by the Federal Trade Com- 
mission, an average based upon the annual purchases dur- 
ing the crop years, 1912-13 to 1916-17, the individual 
cooperative companies each handled 152,792 bushels an- 
nually. Of this amount, 49,543 bushels represented wheat; 
39,754 corn; 48,279 oats; 2,311 rye; and 12,905 barley.^' 
This average represented almost twice the volume of grain 
handled by the average elevator of a comm^ercial line ele- 
vator company, and about one-third more than that handled 
by a local or independent dealer. During that same period, 
the individual elevators of the ''cooperative line elevator 
companies," handled on the average a volume of 136,000 
bushels annually.^^ 

Besides the purchase, storage, sale and shipping of grain, 
a considerable number of the companies engage in what 
may be classed as secondary or incidental functions. The 
first of these to be mentioned, is the elevating and loading 
of grain for those who do not market their grain with the 
company, but ship it directly to the terminal market. Many 
grain growers, especially of the Northwest, prefer to ship 
their grain directly, either on account of dissatisfaction 
with the price, weight, or dockage, offered at the country 
elevator, or because they have such a large amount of one 
kind of grain as to make direct shipping profitable. Some 



37 opus. cif. Vol. I, p. 117. 
38Loc. cit. p. 117. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 49 

of those shipping their grain directly to the terminal mar- 
kets, load it themselves into the car, but the majority 
have it loaded from the country elevator. When this is 
done, the grain is unloaded from the wagon, is weighed, 
and elevated into a bin, and there stored until the farmer 
has hauled all his grain or until the grain has accumu- 
lated to an amount equal to the capacity of a car; then it 
is loaded into the car. About one-third of the companies 
engage in elevating and loading grain for direct shippers. 
The company of course makes a charge for performing this 
service, and this charge varies from one to two cents per 
bushel f^ but in places where competition is keen, the serv- 
ice is sometimes performed free of charge. 

The vast majority of the companies handle a variety 
of side-lines such as, coal, feeds, flour, building material, 
seeds, salt, cement, and various other farm supplies.*^ The 
shipping of live-stock has also been engaged in by many 
companies, especially by those of Nebraska and lowa,^^ al- 
though the present tendency is to form distinct associations 
for this purpose. 

Because of the large amounts of grain and side-lines 
handled, the financing of a cooperative elevator company 
constitutes one of its most important business features. 
Since the prevailing practice is to pay cash for all grain de- 
livered, and since most of the local marketing of grain is 
done during a comparatively brief period of the year,*^ 
there is an inevitable lack of funds to carry on the business 
without the aid of outside loans. In 1914 the cooperative 
companies of the North Central States, according to esti- 
mates of the Office of Markets and Rural Organizations,*^ 
borrowed approximately $27,000,000, an average of more 
than $18,000 per company. Taking these figures as a basis, 



3» Loc. cit. pp. 151-57. 

*o Out of the total number of cooperative companies reporting to the 
Federal Trade Commission, 82 per cent handled coal ; 55 per cent, feeds ; 
41 per cent, flour ; 17 per cent, building material ; and 14 per cent, seeds. 
Opus cit. p. 173. 

*i Jesness and Kerr, Opus cit. p. 28. 

*2 See for instance Yearbook of U. S. Dept. Agric, 1919. pp. 516, 
525, 537. 

*3 Jesness and Kerr, Opus cit. p. 51. 



50 THE COOPERATIVE ELEVATOR MOVEMENT 

the 4,442 companies of the North Central States in market- 
inging the 1919-20 crop, borrowed a sum of approximately 
$80,000,000.^^ This represents a conservative estimate in 
view of the fact that the prices prevailing for grain and 
farm supplies during 1920 were considerably higher than 
during 1914. 

The three main sources from which loans may be se- 
cured are, commission firms, local banks, and individual 
members of the company. Security for these loans is based 
upon agreements to ship certain amounts of grain to the 
loaning commission firm, upon mortgages on the elevator 
and equipment, endorsed company notes, warehouse re- 
ceipts of grain in storage, and upon personal security 
noteB of individual members of the company.*^ 

The manner of distributing profits or earnings in a co- 
operative elevator company depends upon its plan of or- 
ganization. Attention should be called to a difference of 
opinion that exists among some grain growers as to what 
should constitute the proper basis for the distribution of 
the patronage dividend. It has been held by some that the 
proper basis is the value of the grain purchased and not 
the number of bushels contributed.^^ As a consequence 
many companies have adopted this method of distributing 
profits.-"' 

Many companies have adopted also the practice of dis- 
tributing profits to non-members doing business with these 
companies. Usually this provision grants to non-members 
only one-half the amount received by members per unit 
of business, and no payment is made until the amount has 



**This sum for the greater part represents loans extending over only a 
few months. 

*^ Loc. cit. pp. 27-28 ; Bassett, Moomaw, and Kerr, Cooperative Marketing 
and Financing of Marketing Associations, pp. 201-211 ; Report of the Fed- 
eral Trade Commission, Opus cit. pp. 232-242. Some companies in order to 
increase their credit use a form of bond which states the undersigned will 
become responsible for any loans made by the corporation to the amount 
set opposite to their names or to an amount equal to their present share 
capital. In this way the credit of a company can be doubled without in- 
creasing the capital. 

*^ J. R. Humphrey and W. H. Kerr. Patronage Dividends in Cooperative 
Grain Companies, p. 6. Bulletin 371, 1916, U. S. Dept. of Agric. 

*^ Report of the Federal Trade Commission, Loc. cit. 31 ; See also Chap- 
ter VI, p. 124 of this treatise. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 51 

accumulated to the full value of a share of stock, which 
is then issued to the non-member, and confers upon him 
all the rights of a stockholder. While this practice is be- 
coming more common and no doubt offers an effective 
method of securing new members, still there are many who 
advocate the retention of profits accruing from the business 
of non-members. Thus, Mr. E. G. McCullom, the secretary 
of the Indiana Farmers Grain Dealers Association, in ex- 
plaining what he considers the best plan for the distribu- 
tion of profits for the elevator companies of that State, 
says:^^ 

"1. Pay capital the legal rate of interest. 

"2. Pro-rate the profits on grain to grain. Pro-rate the profits 
on supplies to supplies. 

"3. Keep the profits on non-members' business in the treasury for 
a rainy day, for one or two of those lean years which usually come." 

Many companies make provision for the creation of a 
surplus fund. Ten per cent of the annual net earnings are 
sometimes set aside until a sum is reached equalling at 
least 30 per cent of the paid-in capital. This is required 
by the cooperative incorporation laws of some states, for 
instance, by those of Wisconsin, Minnesota and Iowa. 
Similarly, a fund representing 5 per cent of the annual 
net earnings is set aside by some companies for educational 
purposes and for promoting cooperation. The setting aside 
of a fixed percentage of the net earnings until a specified 
sum is reached, is a great aid in properly financing the com- 
pany. It not infrequently happens that a company cannot 
offer acceptable security for loans except through the per- 
sonal notes of some of the individual members, usually of 
the directors. This is placing a burden upon a few mem- 
bers which should be borne by all. 

The foregoing explains in brief outline the structure 
and functions of the local grain elevator companies, when 
organized as complete, independent business units. It re- 
mains to study the variations of the existing companies not 
thus organized. 



*^ Directory of the Farmers Grain Dealers Association of Indiana. 1920, 
p. 44. 



52 THE COOPERATIVE ELEVATOR MOVEMENT 

Several companies, though their number is compara- 
tively small, operate on what is known as the County Unit 
Plan. According to the County Unit Plan, all the coopera- 
tive enterprises of the county in question, or as many 
as are willing to take this step, affiliate themselves with a 
centralized association and conduct their business as a unit. 
Cooperative stores, creameries, and other cooperative asso- 
ciations — all may become members of the centralized 
county organization. This plan, which has been specially 
fostered by the Farmers Union,*^ is most extensively de- 
veloped in Kansas, where also a considerable number of 
cooperative elevator companies have thus affiliated them- 
selves. 

When the County Unit Plan is adopted by cooperative 
elevator companies, the functions of selling the grain and 
buying the supplies for them, is performed by the general 
manager of the county organization. Each day he receives 
information as to the amount of business each member 
has transacted with the local company. This information is 
so filed as to enable the central office to compute at any 
time the financial status of each affiliated association and 
of each member.^° 

It is customary for the central office to keep separate 
the accounts for each company. This is done because a 
considerable difference of opinion exists in regard to what 
should constitute the proper basis for the division of profits. 
In as far as some companies operate at relatively lower 
costs than others, it is seen that the former can pay higher 
dividend rates than the latter. In virtue of this fact, the 
companies with relatively lower costs, have favored the 
view that profits should be distributed in proportion to the 
profit that has been realized by each affiliated association 



49 See Chapter IV. pp. 78-80. 

5^ J. R. Humphrey and W. H. Kerr, Opus cit. p. 3. The principle of the 
County Unit Plan is exemplified whenever two or more companies conduct 
their business as a unit through a centralized organization, distinct from 
themselves. When one manager handles the business of two or more ele- 
vators, owTied and operated by the same local company, as is sometimes 
the case, or even when a manager is appointed for each elevator o\\Tied and 
operated at neighboring places by one company, there is no principle of 
organization involved different from that described in the pages immediately 
preceding. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 53 

and should not be equalized according to the transactions of 
the association as a county unit.^^ 

A form of organization, more elaborate and complex 
than the County Unit Plan, is represented by those local 
companies that are members of a centralized association 
which engages in terminal grain marketing functions, such 
as the buying and selling of grain on the exchanges or 
boards of trade and the operating of terminal elevators. 
Under this system, the unit of membership in the central- 
ized association is the local company, which is a stock- 
holder therein, which is expected to consign its grain to 
it, and which receives profits from the centralized asso- 
ciation in proportion to the amount of business it has con- 
tributed to it. Until the present, however, the terminal co- 
operative marketing associations, operating on the boards 
of trade have not been able to pro-rate profits to their mem- 
bers in the form of a patronage dividend because this prac- 
tice is considered by the grain exchanges the granting of a 
rebate, which is forbidden according to their rules. In this 
connection it may, however, be of interest to remark that 
the Federal Future Trading Act, recently passed, forbids 
a grain exchange or a board of trade to be classified as 
a "contract market" unless its governing board admits to 
membership and all privileges, "any duly authorized repre- 
sentative of any lawfully formed and conducted cooperative 
association of producers having adequate financial respon- 
sibility." The Act furthermore specifically states "that no 
rule of a contract market against rebating commissions, 
shall apply to the distribution of earnings among the bona 
fide members of any such cooperative association." " 

In the North Central States, the number of companies 
that are at the present time thus affiliated to a terminal 
marketing association, is comparatively very small. The 
companies that are stockholders in the Equity Cooperative 



'^ Opus cit. p. 7. A discussion of the advantages and disadvantages of the 
County Unit Plan is deferred to the Chapter on the Factors of Success in 
Cooperative Grain Marketing. 

5^ H. R. S676, Sec. 5, e, 67th Cong. 3d sess. 



54 THE COOPERATIVE ELEVATOR MOVEMENT 

Exchange ^^ of St. Paul, Minn., are probably the most 
conspicuous example of this development in the cooperative 
elevator movement. There are, however, several organiza- 
tions in the process of formation at the present time which 
contemplate engaging in terminal marketing operations, 
and of which local companies will be stockholders and 
directors.^* 

These organizations are the result of a growing con- 
viction among the grain growers that they should not 
confine their efforts locally to the problem of grain mar- 
keting, but should extend them to the functions surround- 
ing the marketing of grain in the terminal markets. The 
newest development in this direction is the U. S. Grain 
Growers, Inc. This organization represents substantially 
the ideas of the "Commtitee of Seventeen," which upon 
a call issued by the American Farm Bureau Federation,^^ 
convened at Chicago on July 23 and 24, 1920, for the pur- 
pose of discussing plans through the adoption of which the 
marketing and distribution of grain might be improved. 
After an interval of six months devoted to a study of the 
question, the committee met in conference at Kansas City 
on February 17, 1921, where they adopted what has popu- 
larly come to be called, "The Plan of the Committee of 
Seventeen." ^^ This plan was submitted to the grain grow- 
ers of the various states. Meetings were held in various 
sections for the purpose of discussing the plan and select- 



53 The Equity Exchange was organized in 1908 under the auspices of the 
American Society of Equity, and was incorporated in 1911 under the laws 
of North Dakota. The Exchange controls about 100 country elevators, but 
they are for the greater part owned and operated by the Exchange as a 
corporation, and not by growers organized into local companies. Only a 
few local companies own stock in the Exchange. Being denied representa- 
tion on the Minneapolis Grain Exchange as long as it would insist on pro- 
rating profits to its members on the basis of patronage, the Exchange estab- 
lished a market place in St. Paul. See J. M. Mehl, Cooperative Grain 
Marketing, pp. 17-18, Bulletin 947, U. S. Dept. of Agric. ; J. E. Anderson, 
The Equity Cooperative Exchange, a paper contributed to the Third Na- 
tional Conference of Markets and Farm Credits, 1915. 

54 Mehl, Opus cit. p. 18. 

56 The Plan was published by the Committee in a brochure called, An 
Outlined Explanation of the Proposed Grain Marketing Plan of the 
Farmers Grain Marketing Committee of Seventeen. 

55 A brief description of this Federation will be given in the next Chapter, 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 55 

ing delegates for the conference to be held in Chicago on 
April 6, 1921. The conference was convened on the ap- 
pointed date. On the following day, the plan as originally 
drafted by the committee was ratified in its entirety except 
for a few minor changes. The immediate result of this 
conference was the organizing of the association, known 
as the U. S. Grain Growers, Inc. The certificate of incorpo- 
ration was soon issued and the by-laws adopted, as were 
also the contracts whereby the mutual business relations of 
the U. S. Grain Growers, Inc., the local cooperative elevator 
companies and the individual grain growers affiliated with 
it, are to be governed." 

The U. S. Grain Growers, Inc., if it grows to the dimen- 
sions as intended by the plan of which it is the concrete 
embodiment, will easily be the largest cooperative asso- 
ciation in the world, and in the volume of its transactions 
will rival the largest corporations in this country at the 
present time. The plan carries with it an invitation to 
every grain grower in the United States to become a mem- 
ber of the U. S. G. G., which will act as a national sales 
association for its members. Were this plan universally 
adopted, it would mean that the selling of all the surplus 
grain of this country, gigantic in volume, would be concen- 
trated in a single organization. The plan is vast in its 
concept, and, if found successful, may greatly modify the 
present method of marketing and distributing grain in 
this country. The U. S. G. G. is designed primarily as a 
service institution for the local cooperative elevator com- 
panies, since it is to handle their grain in the terminal 
markets. The local companies are intended to become affili- 
ated associations, and thereby will become basic and in- 
tegral parts of the U. S. G. G. In places where there are 



^'^ The certificate of incorporation as also the chief provisions of the by- 
laws may be found in the issue of the American Cooperative Manager, p. 
5-6, April 10, 1921 (Vol. VI, no. 7). The contract between the local co- 
operative elevator company and the U. S. Grain Growers, Inc., may also be 
found in this issue, but this contract as also that governing the relations 
of individual growers and the National Association have been revised. The 
description to follow is based on the contracts as revised on June 20. 1921. 
and contained in a brochure issued by the Department of Information of 
the U. S. Grain Growers. Inc. 



56 THE COOPERATIVE ELEVATOR MOVEMENT 

local affiliated companies, individual grain growers can 
take out membership in the U. S. G. G. only on condition 
that they enter a contract in virtue of which they agree 
to let the local company handle all their surplus grain. 
In places where no local cooperative elevator companies 
have been established, individual growers may contract 
directly with the U. S. G. G. for the handling of their grain, 
but it is the intention that the growers of such communi- 
ties organize themselves into local affiliated companies at 
the earliest opportunity. On the other hand, the local com- 
panies must meet a series of requirements in affiliation, and 
this will necessarily require several changes in the struc- 
ture and functions of a considerable number of them, pro- 
vided they wish to affiliate themselves. 

The U. S. G. G. in its structure is a non-stock, non-profit 
organization.^^ Control of its operations and policies rests 
in a board of directors consisting of 21 members, chosen 
in the following manner. Each local community, organized 
into an affiliated cooperative elevator company or into a 
local grain growers' association, elects a delegate to an 
annual convention which will be composed of all the affili- 
ated local companies and associations of the respective 
Congressional District. This will be called the Congres- 
sional District Convention. Each District will be entitled 
to one delegate at the annual convention of the national 
association. The election of all delegates as also the mem- 
bers of the board of directors will be determined by a ma- 
jority vote. In order that one may be a member of the 
board of directors, it is necessary that he be also a member 
of the U. S. G. G. Anyone who holds an elective or ap- 
pointive political office, is barred from membership on 
the board, and if at any time during his term he accepts 
a political office, his membership automatically ceases.^^ 



^^ The difiference between a non-stock, non-profit association and one 
organized with capital stock and conducted for profit is illustrated by those 
local elevator companies organized as cooperative non-stock associations, 
and those organized as ordinary stock corporations. 

«o By-laws, Art. II and III. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 57 

The aim of the U. S. G. G., as expressed in its certificate 
of incorporation, is : 

"To improve the methods of preparing, storing, and handling agri- 
cultural products including grain and products thereof ; to reduce the 
cost of producing and marketing such products ; to reduce speculation, 
manipulation, and waste, and all unnecessary transactions in such market- 
ing; to encourage scientific and advanced farming practice; to stimulate 
and advocate the planting of the most desirable varieties; to increase 
the consumption, build up new markets, and develop new uses for such 
products ; to facilitate the transportation and the collection of claims 
regarding the transportation of such products ; to market same directly 
and with regularity so as to furnish the same economically to the 
manufacturers and users thereof ; to preserve for the growers and the 
public their proper profits and economies to establish uniform business 
administration and accounting methods among farmers, warehouses, ele- 
vators, and members of this corporation ; to do everything necessary, 
suitable and proper to advance the interest and benefit of the growers 
of grain and those engaged in allied businesses." 

To accomplish its central aim, namely, the improvement 
of grain marketing methods, the U. S. G. G. will act as 
a national sales association for the grain contributed by- 
its members. In pursuance of this aim, the association 
is authorized to establish as it deems advisable: 

"(a) Branch sales offices at important grain markets to handle the 
grain for each natural grain district. 

"(b) Terminal elevator service in connection with sales offices, either 
by contractual arrangements for same, or through the organization 
of a company or companies, which may lease, buy, or build terminal 
elevators. 

"(c) Facilities for financing the marketing of grain through the organi- 
zation of a finance corporation whose capital stock shall be subscribed 
to by members, so far as possible. 

"(d) FaciHties for marketing the exportable surplus of grain and 
. related products. 

"(e) Service departments furnishing information covering local, na- 
tional, and worldwide conditions affecting the grain trade; also informa- 
tion and service in connection with transportation, legal, statistical, and 
other problems." *<> 

In accordance v^ith these provisions, a number of sub- 
sidiary corporations have already been formed ; others are 
in the process of formation, to which still others may be 
added as the need arises. 



By-laws, Art. X, Sec. 2. 



58 THE COOPERATIVE ELEVATOR MOVEMENT 

Sales offices will be established for zones forming natural 
units on the basis of commercial connections and trans- 
portation facilities. "^^ General offices are contemplated for 
St. Paul, Minneapolis, Chicago, Cleveland, Omaha, Kansas 
City, Spokane, Ft. Worth, and New York City.^- A tem- 
porary selling agency has been established at St. Paul, un- 
der the direction of J. M. Anderson, president of the Equity 
Cooperative Exchange.^^ According to official information 
of the pubHcit>^ department of the U. S. G. G., two million 
bushels of grain had been handled on the St. Paul market 
before September 25, 1921.^^ No permanent selling agen- 
cies have thus far been established, but according to recent 
announcement such agencies ^vill be established immedi- 
ately at Chicago, Omaha and Minneapolis.*^^ 

A corporation subsidiary to the U. S. G. G., the fiscal 
agency known as the Farmers Finance Corporation, was 
launched during the latter part of June, 1921. Its capital 
stock is §100,000,000, divided into 1,000,021 shares, 21 of 
which are common and 1,000,000 preferred. The 21 shares 
of common stock will be without nominal value. Control 
of the corporation will, however, rest in the holders of 
these shares, and they will be held by the board of directors 
of the U. S. G. G. The shares of preferred stock will be 
issued in denominations of $100, to be sold to the members 
of the U. S. G. G. as far as possible. In the event of dissolu- 
tion, the assets of the corporation will revert to the holders 
of the preferred stock.^'^ The quick assets of the corpora- 
tion will probably consist in notes secured by warehouse 
receipts, bonds, and comxmercial paper. ^' The finance cor- 
poration will assist the other subsidiary agencies of the 
U. S. G. G. by furnishing them with money and credit in 
their business transactions. Local affiliated companies may 



®i American Cooperative Manager, April 25, 1921, p. 5. 

®2 Ibidem. 

63 See this Chapter, p. 58. 

^^ American Cooperative Manager, Sept. 25. 1921, p. 19. 

^^ American Cooperative Jouryml, p. 31, April, 1922. 

66 American Cooperative Manager, June 25. 1921, p. 40. The shares of 
stock are transferable but they must in the first instance be offered to the 
corporation. Loc. cit. July 25. 1921. p. 11. 

6^ Loc. cit. p. 11. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 59 

borrow money from the finance corporation, provided they 
furnish suitable collateral, and provided no better market 
is open for the invesment of its securities.^^ 

Very little progress has thus far been made in placing 
the finance corporation on a solid basis. Farmers have 
not been willing to subscribe to its stock, a fact due very 
probably to the money stringency on account of the de- 
pressed prices of agricultural products and to the fact 
that the stock of the finance corporation is not entitled to a 
fixed rate of return. Probably a new method of financing 
will have to be devised. The building up of proper selling 
agencies and the securing of adequate finances are the im- 
mediate problems that are facing the officers of the or- 
ganization. Reliance will, however, not be placed alone 
upon the finance corporation to furnish the finances of the 
movement. Each member of the U. S. G. G. must pay an 
initiatory fee of ten dollars, and everyone contributing 
grain to the U. S. G. G. permits a reduction from his pro- 
ceeds to cover the cost of handling. 

Besides the sales and financing agencies, there are six 
other service departments or subsidiary corporations of 
the U. S. G. G. They are the legal, statistical, and pooling 
departments, and those of transportation, organization, and 
information or publicity.®^ In order to avoid duplication, 
the service departments will be correlated as far as possible 
with the already existing agencies with similar purposes. 
Several cooperative commission firms have been established 
in the terminal markets to serve some of the cooperative 
companies at country points, and it is the intention of 
the U. S. G. G. to cooperate with these agencies to the 
fullest extent. Similar correlation will be sought with the 
farmers' grain dealers' associations and kindred organ- 
izations, which are now serving the local companies in vari- 
ous ways, such as providing advantageous insurance and 
bonding rates, supplying auditors, etc. 

Membership in the U. S. G. G. is limited to the ''pro- 
ducers of grain and related products," who comply with 



«8 Loc. cit., June 25, 1921, p. 49. 
«9 Loc. cit., April 25, 1921, p. 5. 



(60 THE COOPERATIVE ELEVATOR MOVEMENT 

its by-laws and regulations, and enter contracts whereby 
they agree that the U. S. G. G. will handle exclusively their 
surplus ^^ grain. Everyone upon becoming a member of 
the U. S. G. G. must pay a fee of ten dollars, to which he 
relinquishes all future claim, as it is merely an evidence 
of good standing and creates no property right, and will be 
used to provide a part of the working capitalJ^ 

The individual members of the U. S. G. G. in order to 
make use of its facilities, must also be members of the 
local affiliated elevator company, provided they reside in a 
community where such a company has been established." 
Local elevator companies must meet certain requirements 
before they can be affiliated with the national association. 
They must be organized under the cooperative incorpora- 
tion law of the state in which they operate ; they must dis- 
tribute their net earnings on the basis of patronage; and 
they must enter a contract with the national association."^^ 
Local companies organized in states which have no coopera- 
tive incorporation law, must be cooperative in the sense 
that the national association will attach to the term."^* 

The considerable number of companies that distribute 
their profits after the manner of ordinary capital stock 
corporations do not meet the requirements necessary for 
affiliation. Such companies may reorganize on a truly co- 



■^0 By this term is meant all grain that is not used for feeding, for seed, 
or for milling into flour for one's own use. Only upon permission of the 
local company or grain growers' association, or upon permission of the 
national association in cases where no such local companies or associations 
exist, is the producer allowed to dispose of his surplus grain in any other 
way than that described. 

71 By-laws, Art. I. 

''2 In places where there is no affiliated company or grain growers' asso- 
ciation, individual members may contract with the U. S. G. G. for the direct 
shipment of their grain. 

73 U. S. Grain Growers, Inc., a brochure issued by the Department of 
Information, p. 11. 

7* The following requirements have been set down for such companies : 
"1. Each stockholder can have only one vote; 2. Each stockholder can 
own only a limited amount of stock; 3. Dividends on stock must be limited 
to a reasonable rate ; 4. The earnings, above cost and surplus funds, must be 
distributed as patronage dividends ; 5. No proxy voting may be allowed un- 
less required by statute: 6. Ownership of stock must be limited to grain 
growers ; 7. Stock must be available for sale to any grain grower in the 
community who wishes to become a member." Loc. cit. p. 11. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCMTIONS 61 

operative basis, or when this is difficult or impossible, the 
stockholders or directors who are members of the U. S. 
G. G. may organize themselves into a local grain growers* 
association, which will thereupon assume the same func- 
tions as those companies meeting all requirements. In 
the event of stockholders or directors not taking such ac- 
tion, the national association will make no attempt to or- 
ganize a cooperative elevator in that community before 
January 1, 1924.^=^ 

The business relations of the individual members and 
the local affiliated companies or growers* associations with 
the U. S. G. G., are specified in two complementary agree- 
ments. The first of these is known as the Grain Growers' 
Contract, whereby the individual member agrees that the 
local affiliated company shall handle all his surplus grain; 
the other is called the Elevator Contract, whereby the local 
company or association agrees that the U. S. G. G. shall 
handle all the grain contributed to the local company by the 
individual members. By violating these provisions of the 
contracts, both the individual growers and the local com- 
panies agree to pay certain sums as liquidated damages."^^ 
The first term of these contracts is to be for a period of 
five years, and hence will extend to June 30, 1927." There- 
after the contracts are to continue in effect from year to 
year until either party terminate the same."^^ 

The method according to which grain shall be handled 
and sold is determined by the individual member. Three 
distinct methods of sale are open to him. He may sell it 
at the current market price to the local affiliated company, 
and receive also a patronage dividend if sufficient profits 
have been realized from the transaction to warrant its 
payment.^^ He may also consign his grain to the national 



75 By-laws, Art. X, Sec. 4. 

7^ See Grain Growers' Contract, Sec. 13 ; Elevator Contract, Sec. 14. 

'^'^ Grain Growers' Contract, Sec. 4 ; Elevator Contract, Sec. 13. 

'■* For conditions governing the termination of the contracts, see Grain 
Growers' Contract, Sec. 14, B-3 ; Elevator Contract, Sec. 13. 

■^9 Grain Growers' Contract, Sec. 13, A-1. The contract does not 
specifically state that a patronage dividend will be allowed on such trans- 
actions, but it is stated in the official brochure, The U. S. Grain Growers, 
Inc., p. 24. 



62 THE COOPERATIVE ELEVATOR MOVEMENT 

association, the local company acting as a forwarding 
agent. The net proceeds, less the cost of handling, will 
be returned to the grower.®^ The elevator company, how- 
ever, is exempt from any losses or damages that may occur 
in the handling of the grain except for those of which it is 
the proximate cause. The third method according to 
which grain may be handled, is that of pooling. This 
method of sale and handling involves the collection of grain 
for storage, the centralization of the selling responsibility, 
and the reception of average prices for grain of like kind 
and quality. 

The pooling feature as elaborated by the U. S. G. G. is 
characterized by elasticity, there being three distinct 
methods of which the members may avail themselves. Grain 
may be pooled locally. All the members of a local affiliated 
elevator company, or as many as care to take this step, 
may agree that all the grain contributed by each shall be 
commingled with grain of like kind and quality, to be sold 
during a period agreed upon, and the payment received 
to be "the average price secured for all grain of like kind 
and grade so commingled and sold, less deductions for 
costs of handling * * * and subject to such equitable differ- 
entions as said company may find necessary to estab- 
lish." ^ The administration of local pools will be under 
the jurisdiction of a local pooling committee, consisting of 
three members, chosen by those who wish to avail them- 
selves of this method of sale. This committee exercises 
"complete control over the handling, shipping, and selling 
of all pooled grain, determining the time, quantity and des- 
tination of sales, and effecting all necessary contracts and 
other arrangements for storage, etc., which may be deemed 
necessary for the efficient marketing of said grain." ^^ 

The members of the U. S. G. G. may also elect to have 
their grain handled on the basis of joint pooling. When 



80 Grain Growers' Contract, Sec. 13, A-2. 

81 Loc. cit., Sec. 14, B-1. 

^^ Loc. cit., Sec. 14, B-1, c. The control of the local committee extends 
extends only to the grain contributed to the Icoal pool. For a more ex- 
plicit statement of the committee's rights and duties, see Sec. 14, B-1, d-p. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 63 

this method of sale and handling is adopted, the grain 
pooled locally is commingled with other grain of like kind 
and quality, belonging to one or more of other affiliated 
companies. It is within the jurisdiction of the local pooling 
committee to decide whether the grain contributed to the 
local pool, shall be handled on a joint basis. The individual 
grower has the same right in regard to his own grain. 
The national association exercises complete control over 
the joint pool, returning of course the net proceeds to the 
members contributing to such pools. ®^ 

A third method of pooling is that known as the Partial 
Grain Pool. Under this arrangement the grower elects to 
pool one-third of his grain, the balance of which may be 
handled on the basis of cash sale or consignment. The ad- 
ministration of the partial pool will be under the control 
of the national association.®* 

In as far as grain pooling involves the reception of 
average prices for grain of like kind and grade it takes on 
the aspect of an insurance measure. It guarantees the 
producer against receiving the lowest market price that 
will prevail at any time within the period covered by the 
pooling contract, and, it likewise will prevent him from re- 
ceiving the highest market price prevailing at any time 
within that same period. The differential between the 
average price for the entire term of the pooling contract 
and the highest price prevailing at any specific time during 
that same period, may be looked upon as the highest pos- 
sible cost of carrying such insurance.®" 

The local affiliated companies or grain growers* associa- 
tions assume several other obligations besides those con- 
nected with the handling of the grain of the individual 
members. They must obey the rules and regulations which 
the national association may issue for standardizing the 
manner of keeping warehouse records and accounts, as also 



^^Loc. cit. Sec. 14, B-2. 

8* Loc. cit., Sec. 14, B-3. 

^^ This presupposes of course that grain can be handled as economically 
on a pooling basis as on that of cash sale or consignment. The pooling 
feature of the plan has thus far met with little favor. 



64 THE COOPERATIVE ELEVATOR MOVEMENT 

those issued for providing inspectors and weighers to 
standardize the methods of weighing, handling, storing and 
shipping of grain. They likewise agree to furnish the 
national association with statistical crop data of the com- 
munity, and permit it to examine and audit their accounts, 
records, and reports.^*^ In cases when a lien exists upon the 
grain covered by the contract, the company must report 
this fact to the national association. The association may 
then pay off the lien in part or wholly, from the proceeds of 
such grain, and deduct all expenses connected with it.^' 
Losses sustained by the local companies or associations on 
account of their own negligence shall be charged to them, 
but they have no financial liabilities for debts incurred by 
the national association in its own name. On the other 
hand, the national association is exempt from liability to 
the companies or associations when it sustains losses not 
due to its own negligence.®^ 

The U. S. G. G. is a non-profit association, and hence 
must perform its services at cost. In other words, all the 
proceeds realized on its transactions, must be returned to 
the members after the cost of handling the business has 
been deducted. The same statement applies to the local 
affiliated companies or grain growers' associations.®^ All 
the proceeds accruing to the U. S. G. G. will be blended 
into a general fund. The board of directors may deduct 
from time to time such uniform aniounts or percentages 
as shall be regarded necessary to meet the expenses of 
handling grain committed to it by its members, and to 
provide other funds necessary in carrying out the pur- 
poses of the association, such as the leasing or buying of 
elevator facilities, the creation of reserves, the control and 
operation of subsidiary corporations, etc.^^ As far as 



^^ Elevator Contract, Sec. 4-5. 

8^ Loc. cit., Sec. 7. This obligation of the local company or association 
is based upon the previous obligation of the individual member to give a 
signed statement to the company, showing what liens, if any, there are upon 
the grain he delivers. The company has the right to pay off these liens if it 
cares to meet the situation in this manner. Grain Growers' Contract, Sec 9. 

88 Loc. cit. Sec. 8, 9. 

^^ Grain Growers' Contract, Sec. 17; Elevator Contract, Sec. 12. 

'^^ Elevator Contract, Sec. 12. 



STRUCTURE AND FUNCTIONS OF LOCAL ASSOCIATIONS 65 

possible, all operating and capital expenditures will be 
levied against the grain necessitating them. When grain 
contributed to the U. S. G. G. is sold by it on a grain ex- 
change and no other service of a substantial character is 
performed, it may levy against such grain not more than 
one per cent of its value, "unless the standard charge for 
similar service shall be more than one per cent."^^ "On 
other grain where facilities requiring capital invest- 
ment are used, the maximum deductions for any one year 
from the proceeds of all sales of grain to be made for cap- 
ital expenditures, interest charges, etc., (aside from 
ordinary operating, including overhead expenses) in order 
to acquire ownership or control over marketing facilities 
shall in no case exceed one per cent of the value of the grain 
so handled by the U. S. Association."^^ ^he amount of 
expenditures deducted for the cost of handling and for such 
other charges as shall be deemed necessary by the board of 
directors, will always be estimated for the ensuing year. In 
case the sum exceeds the requirements, the board of di- 
rectors at its own discretion may invest the balance of the 
sum to meet future obligations or it may distribute this 
balance to the individual members.^^ 

The U. S. G. G. at stated intervals will issue certificates 
to the local affiliated companies or associations, indicating 
the proportionate amounts deducted from the proceeds for 
the cost of handling and for the acquisition of facilities 
deemed necessary in carrying out its purposes. The affili- 
ated companies will issue certificates to the individual 
members, based on those received from the national asso- 
ciation. "The said certificates shall be assignable freely by 
endorsement; but shall not be deemed as obligations of the 
U. S. Association with definite or other maturity, and shall 
not bear interest; and they shall not represent any obliga- 
tions or rights, other than a proportionate ownership in 
certain assets held by the U. S. Association, which shall 
not be separable or subject to distribution during the life of 



91 Loc. cit. Sec. 12. 

92 Ibidem. 
9* Ibidem. 



66 THE COOPERATIVE ELEVATOR MOVEMENT 

the U. S. Association except at the option of the duly con- 
stituted Board of Directors. * * *" «* 

This then in brief outline presents the *Tlan of the 
Committee of Seventeen" as finding application in the U. 
S. Grain Growers, Inc. While the organization is as yet 
distinctly in the formative stage, the soliciting of members 
and the affiliating of local companies is well under way in 
several of the important grain producing States.®^ That 
the plan as thus far elaborated may have to be modified 
in order to accommodate itself to conditions that may 
not have been foreseen, is readily appreciated. It will 
likewise not be surprising that the plan should not meet 
with universal approval even among those who are firm 
believers in the value of cooperative marketing, if we con- 
sider the vastness or magnitude of the plan itself, and 
especially if we consider the manifold minute provisions of 
the two contracts summarily outlined in the preceding 
pages.®^ A study shall now be made of those agencies or 
associations which have assisted the local companies in per- 
forming their functions, and thereby have contributed ma- 
terially in advancing the cooperative elevator movement to 
a stage where an organization like the N. S. Grain Growers, 
Inc., became a possibility. 



»* Ibidem. 

^5 See American Cooperative Manager, April 25, 1922, p. 288. 

»^ Mr. Charles Kenning, the president of the Minnesota Farmers' Grain 
Dealers' Association, has offered various objections to the plan, and has 
published them in a brochure, entitled, Question Book regarding the Pro- 
Posed Grain Marketing Plan of the Committee of Seventeen. It is to be 
noted, however, that Mr. Kenning is not here writing in the name of the 
association. 



CHAPTER IV. 

AGENCIES PROMOTING COOPERATIVE GRAIN 
MARKETING. 

Cooperative grain marketing as representative of a 
movement, shows a uniformity of development, v^hich has 
manifested itself in the tendency toward centralization. 
After a number of local companies had been formed within 
a state, they soon realized that they could advance their 
common interests more effectively by concerted action. 
This conviction led them to organize farmers' state grain 
dealers' associations. In all of the North Central States 
except Wisconsin, such associations have been organized. 
In 1913 the then existing state associations federated into 
the National Council of Farmers Cooperative Associations, 
an organization which represents the interests of the co- 
operative elevator movement in matters of interstate and 
national import. The necessity of an official organ devot- 
ing itself to the educational and publicity aspects of the 
movement, was also soon recognized, and this led to the 
formation of the American Cooperative Publishing Com- 
pany in 1911. All these organizations have as their sole 
purpose the promoting of cooperative grain marketing. 
But besides these, there are several other rural business 
associations in which the promoting of cooperative grain 
marketing forms an important phase of their activities. 
The principal ones are: the Farmers* Educational and 
Cooperative Union, more commonly known as the Farmers' 
Union; the American Society of Equity; the Farmers' 
Equity Union; the Non-partisan League; and the Ameri- 
can Farm Bureau Federation. An indication of the struc- 
ture and functions of these agencies in relation to the local 
cooperative elevator companies will be of value. 

As early as 1903, farmers' state grain dealers' asso- 
ciations were organized in Illinois and Nebraska, and in 
the following year the companies of Iowa also united into 

67 



68 THE COOPERATIVE ELEVATOR MOVEMENT 

a state association. In 1907, associations were organized in 
Minnesota and South Dakota. Four years later the state 
association of North Dakota was formed, and in 1913 that 
of Kansas. The state associations of Ohio and Indiana 
were organized in 1918. The most recent associations are 
those of Michigan^ and Missouri, the former organized in 
1918, and the latter in the following year. The only state, 
therefore, of the North Central Group, in which no state 
association has as yet been formed is Wisconsin.^ 

The scope and purpose of the state associations are 
everywhere similar. The following declaration from the 
preamble of the constitution of the Iowa Association may 
be taken as typical. This association proposes "to advance 
the commercial interests of the cooperative organizations 
of the State, engaged in the handling of grain, to inculcate 
just and equitable principles of trade; to acquire, preserve, 
and disseminate valuable business information; and to en- 
courage frequent intercourse and consultation among its 
members for the promotion of their common interests." The 
state associations do not in any way interfere with the 
autonomy of the local companies. The latter are at perfect 
liberty to affiliate themselves with the respective state asso- 
ciation, and upon affiliation retain their freedom to market 
their grain and to purchase their supplies according to their 
own wishes. The state associations aim to facilitate the 
performance of these functions by assisting the local com- 
panies in matters of transportation, terminal market facil- 
ities and legislation; and by assisting them in other ways, 
such as providing valuable business information, legal ad- 
vice, advantageous bonding and insurance rates, supplying 
auditors, collecting damage claims, locating managers for 
companies seeking them, aiding local companies to re- 
organize on a new basis of conducting their business, and 



1 The state association of Michigan can really not be called a distinct 
organization since shortly after its formation, it amalgamated at least 
partially with the State Farm Bureau of Michigan. 

2 The reasons for this are very probably the fact that Wisconsin is not a 
relatively important grain producing State, and secondly, the presence of 
the American Society of Equity, the aims of which are very similar to 
those of the state associations, and which is very prominent in Wisconsin. 



AGENCIES PROMOTING COOPERATIVE MARKETING 69 

assisting the farmers of a community who contemplate the 
formation of a company. 

Any cooperative organization in the state, engaged in the 
handling of grain and willing to comply with the regula- 
tions of the association, may be admitted to membership 
upon the approval of the board of directors. The unit of 
membership, therefore, is the local company just as the in- 
dividual growers are the units of membership in it. A 
board of directors, consisting of a president, vice-president, 
secretary, treasurer, and several other persons, constitute 
the governing body of the associations. 

Each state association holds an annual convention. This 
is generally held during the winter months. At this meet- 
ing the board of directors offers its report through the 
secretary; particular problems of the cooperative elevator 
movement are discussed; papers are contributed on sub- 
jects relative to agriculture and marketing by men expert 
in these subjects; and resolutions are drafted stating the 
specific aims toward the attainment of which the members 
are to devote their efforts during the following year. 

Upon the secretary devolves the greater part of the work 
of the association. In a manner his activities may be said 
to be co-extensive with those of the association itself. 
Thus, the constitution of the Iowa Association, which may 
be taken as typical, specifically provides : 

"It shall be the duty of the secretary to encourage the forming of 
cooperative companies for the handling of grain and to assist in their 
organization if requested to do so. 

"He shall respond to any call to help perfect such organizations by 
going to the place of meeting, giving all information possible and assist- 
ing such organizations to be completed for effective work in the co- 
operative field when he deems this advisable." 

The nature and variety of his work may be best seen by 
quoting directly from one of the reports. The following is 
an extract from the Report of the State Secretary of the 
Illinois Association for the year 1919.^ 



^American Cooperative Journal, Vol. 14, No. 7. pp. 250-1. This Report 
has been chosen because it presents very briefly the most important aspects 
of the secretary's work. The Report is not quite typical in as far as it 
presents the activities of sixteen months and of one of the most prominent 
State Associations. 



70 THE COOPERATRT ELEVATOR MO\'EMEXT 

"Since the Galesburg convention your secretary has attended 34 an- 
nual stockholders' meetings, 39 organization meetings, 15 directors' 
meetings, visited 23 companies on income tax and other matters, attended 
2 managers' meetings, made 2 trips to confer with President Sailor and 
one to confer with the treasurer. He also made 8 trips to Chicago in 
connection with car distribution, scale and claim matters * * * some 
of which were an\-thing but pleasant undertakings. He also made 8 
trips to Springfield on legal and legislative matters, 3 to Peoria on pro- 
gram and convention work, 1 to Washington on transportation matters 
and others, and one to Omaha to sit in at the annual convention. 

'"The work of the association has steadily increased and seems to have 
doubled in the last year. Both mail and callers had a good increase. 
Scarcely a day now passes without calls from our ovr-n people and also 
from other interests, all of which can be so handled as to help our 
movement. With our present office organization it is impossible to 
respond to all calls for data and information." 

Because of the constantly increasing activities falling 
within the scope of the associations, the majorit\' of them 
now employ secretaries who devote all of their time to 
secretarial work. In the following States, the secretaries 
are employed on full time: Ilhnois, Iowa, Indiana, Ohio, 
South Dakota, Nebraska, Kansas, and North Dakota. 

The board of directors determines the membership fee 
and dues to be in force during its term of office. The an- 
nual dues are generally thirt>' dollars. Besides this, there 
is a car fee imposed, which is generally five cents for every 
car shipped by the local affiliated companies. 

Although the state associations have been of great benefit 
to the local companies, their lack of funds has in a measure 
limited their effectiveness. As just stated, they are 
financed by the local affiliated companies. But because 
many of the benefits which the state associations secure, ac- 
crue to all the companies alike whether affiliated or not, it 
has been difficult and in many cases impossible to induce 
them to ai^iate. During the last few years, however, the 
associations have increased their membership at a rather 
rapid rate. Thus, the Association of Illinois at the begin- 
ning of 1917, had a membership of 204 companies,^ while 
at the beginning of 1920 it had a membership of 312.^ The 



* American Cooperative Journal, Vol. 12. No. 2. p. 23'/ 
^ Sec. Farlow in letter to writer. 



AGENCIES PROMOTING COOPERATIVE MARKETING 71 

Association of Iowa experienced a similar increase within 
the same period. From 238,^ the membership had in- 
creased to 325/ In Kansas the rate of increase has been 
even greater. At the beginning of 1917, there were only 
100 companies affiliated with the state association,^ while 
at the beginning of 1920 the number had increased to 261. =* 

After several state associations had been formed, it was 
but natural that these should federate into a national 
organization, which could represent the interests of the 
cooperative elevator movement in matters of interstate and 
national import. At Minneapolis in 1912, such an organ- 
ization was founded, which took as its name. The National 
Council of Farmers' Cooperative Associations. This Coun- 
cil functioned until March, 1920, when at the annual con- 
vention at Chicago, its name was changed to The Farmers* 
National Grain Dealers' Association.^^ This name, it was 
thought, would express adequately the scope of its activities 
by indicating more obviously its relation to the various 
state associations, and at the same time would distinguish 
it more readily from other rural organizations with similar 
objects and with names likewise very similar to the one the 
association bore before the change. 

The constitution of the national association was revised 
at the convention in Chicago. As now drafted the constitu- 
tion declares that the object of the association shall be: 

"To encourage and promote the formation of cooperative associations; 
to develop uniformity in the work of organization of such associations 
and of state associations ; to correlate and strengthen such state associa- 
tions by federation into a national body ; to aid and assist farmers' ele- 
vator associations and farmers' state associations in matters of transpor- 
tation, markets, and cooperative education; to secure wise and uniform 
state and national legislation in the interests of the farmers' elevator 
companies ; to furnish legal and expert advice and assistance in further- 
ance of the individual interests of these associations and to perform such 
other work as may be of benefit to its members in the furtherance of 
the cause."ii 



« Loc. cit. Vol. 12, No. 6, p. 447. 

''' Sec. Myers in letter to writer. 

^Loc. cit. Vol. 12, No. 5, p. 444. 

^ Sec. Lawrence in letter to writer. 

^^ American Cooperative Journal, April. 1920, p. 8. 

11 Ibidem. 



72 THE COOPERATIVE ELEVATOR MOVEMENT 

The unit of membership is the state association. Any 
state association upon application to the secretary and with 
the approval of the board of directors, may be admitted to 
membership. The officers of the association consist of a 
president, vice-president, secretary-treasurer, and two 
members of each affiliated state association. Together they 
constitute the executive committee. The secretary is in- 
vested with a large degree of authority and responsibility, 
and must give his entire time to the business of the organ- 
ization except as otherwise arranged with the executive 
committee. Besides a secretary the association employs a 
legal adviser, who represents the legal interests of the 
movement, especially in its relation to the railroads. This 
position has been held for several years by the Hon. Clif- 
ford Thorne. He has appeared on numerous occasions be- 
fore the Interstate Commerce Commission and before the 
Railroad or Public Utilities Commissions of the various 
states in matters of railroad legislation and litigation.^^ 

The funds with which to promote and carry on the work 
of the national association are provided by the affiliated 
state associations. They are required to pay a sum equal to 
25 per cent of all the dues collected during each fiscal year, 
such payments to be made in quarterly installments.^^ This 
method of providing funds is a departure from the former 
one, by which the regular assessment was one dollar per 
year for each member (the local affiliated elevator com- 
pany) of the state associations affiliated with the National 
Council. Special assessments could be levied whenever 
necessary but the total might never exceed the sum of five 
dollars per member of every affiliated state association, dur- 
ing one fiscal year.^* Through the recently adopted method 
the national association hopes to have adequate finances, the 
lack of which has hampered its efficiency. 

The necessity of an official organ was soon recognized 
by the leaders of the cooperative elevator movement. To 



^2 See esp. American Cooperative Journal, Vol. 12, p. 715; Vol. 14, p. 
25 (Aug., 1919). 

^^Loc. cit. Vol. 5, p. 8, (April, 1920). 
'^'^Constitution of the National Council. 



AGENCIES PROMOTING COOPERATIVE MARKETING 73 

fill this need the American Cooperative Journal, a monthly- 
publication, was launched in 1905, with Mr. C. G. Messerole 
as its first editor ."^^ 

Until 1911, the Journal, which was the official organ of 
the movement only by endorsement, was under private 
ov^nership and management. In that year an offer was ex- 
tended to the then existing state associations to purchase 
the Journal, and this offer was accepted.^^ 

To facilitate the transaction of business, the associations 
organized themselves into a corporation, known as the 
American Cooperative Journal Company. On Dec. 5, 1917, 
this name was changed to that of the American Cooperative 
Publishing Company, a name adopted to express more 
adequately the activities in which the Company was now 
engaged. Besides the American Cooperative Journal, it 
was now publishing also the American Cooperative Man- 
ager, a fort-nightly magazine edited specially for the bene- 
fit of the managers and boards of directors of the local 
companies.^^ 

The American Cooperative Journal as also the Manager 
have articles on special topics relative to the grain trade; 
publishes summary reports of the annual conventions held 
by the state associations ; discuss particular problems of the 
movement and record its activities in the different states; 
and carry advertisements of firms soliciting the trade of 
the local companies. In short, they represent the various 
branches of the movement in its educational and publicity 
aspects. The American Cooperative Publishing Company 
is under the management of Mr. Millard R. Myers, assisted 
by a staff of associate and contributing editors. Mr. Myers* 



^^ Mr. Messerole was also the Secretary of the Iowa State Association, 
and manager of the cooperative elevator company at Gowrie. 

1^ For conditions leading to the transfer of ownership, see brochure. 
The American Cooperative Publishing Company, pp. 2, 3, issued by the 
Company. 

1' This publication was first issued in 1916, under the name of the Suc- 
cessful Manager. The Company has likewise organized an auditing depart- 
ment for the purpose of auditing the accounts of those companies that wish 
to avail themselves of its service. This department is under the charge of 
Mr. Frank S. Betz, who has likewise perfected a simplified accounting 
system which has been installed in very many of the local companies. 



74 THE COOPERATIVE ELEVATOR MOVEMENT 

wide study of cooperative methods, both in Europe and in 
this country, has well prepared him for his task. Under 
his m.anagement the Company has enjoyed a steady growth, 
as is «hown by the fact that at the beginning of 1920, the 
subscription list of the Journal numbered 68,000.^^ 

The agencies thus far described in this chapter, devote 
their entire efforts toward advancing the interests of the 
cooperative elevator movement. Besides these, there are 
several other rural organizations operative in the North 
Central States, in which the promoting of cooperative grain 
marketing forms a phase of their activities. The organiza- 
tions that have been most prominent in this regard, are The 
Farmers' National and Cooperative Union of America, The 
American Society of Equity, The Farmers' Equity Union, 
The Non-Partisan League, and The American Farm Bu- 
reau Federation. A brief description of them, especially 
in their relation to the cooperative elevator movement, may, 
therefore, not be out of place. 

The Farmers' Educational and Cooperative Union of 
America, more commonly known as, the Farmers* Union, 
is of Southern origin, the first local union having been 
established at Smyrna, Texas, Sept. 2, 1902.^* Its purpose 
as stated in the constitution, is a very broad one. It pro- 
poses : 

To secure equity, establish justice and apply the Golden Rule. 

To discourage the credit and mortgage system. 

To assist the members in buying and selling. 

To educate the agricultural classes in scientific farming and the 
process of marketing. 

To systematize methods of production and distribution. 

To eliminate gambling in farm products by Boards of Trade, Cot- 
ton Exchanges, and other speculators. 

To bring farming up to the standard of other industries and busi- 
ness enterprises. 

To secure and maintain profitable and uniform prices for cotton, 
grain, live-stock, and other products of the farm. 



^^ American Cooperative Journal, Jan.. 1920, p. 1. 

^^ Charles Barrett, The Mission, History and Times of the Farmers' 
Union, p. 103. Mr. Barrett is the national president of the Union. His 
history relates the activities of the Union till 1908. 



AGENCIES PROMOTING COOPERATIVE MARKETING 75 

To strive for harmony and good will among all mankind and 
brotherly love among ourselves. 

To garner the tears of the distressed, the blood of martyrs, the 
laugh of innocent childhood, the sweat of honest labor, and the virtue 
of a happy home as the brightest jewels known. 

The organization comprises a national union, state, 
county, and local unions. No local union may be formed 
without at least five male members ;2'^ five or more local 
unions may form a county union, and a state having a 
membership of 5,000 male members may be granted a 
state charter.21 

At the beginning of 1921, the Farmers' Union was repre- 
sented in 26 states according to the National Secretary, Mr. 
E. A. Davis, whose headquarters are at Gravette, Arkansas. 
Among the North Central States, it is represented in Kan- 
sas, Nebraska, South Dakota, North Dakota, Minnesota, 
Iowa, Illinois, Indiana, and Missouri,^^ j^^t the mem- 
bership is comparatively small in all of these states 
except in Kansas, Nebraska, and Iowa. Within the past 
year there has been a considerable increase in membership 
in South Dakota, Illinois, and Indiana, and at the present 
time the Union is carrying on an active campaign for new 
members in Wisconsin, which promises a large increase in 
membership in that State.^^ 

From the enumeration of its aims, it is seen that the 
Farmers' Union purposes to improve the fraternal, educa- 
tional, social and economic life of the farmer. Its eco- 
nomic activities have been chiefly directed toward organiz- 
ing his collective bargaining power in buying and selling. 
Its aims, therefore, in this phase of its activities are con- 
siderably wider than that of promoting cooperative grain 
marketing. But through its influence and activities, many 
cooperative grain elevator companies have been organized. 
In the North Central States, it has been instrumental in 
organizing companies in Kansas, Iowa, South Dakota, and 



2<' Membership is open also to women. 

21 Constitution. 

22 L. S. Herron, editor of the Nebraska Union Farmer, in letter to writer. 

23 Ibidem. 



76 THE COOPERATIVE ELEVATOR MOVEMENT 

Nebraska. In the last-named State, according to Mr. L. S. 
Herron, editor of the Nebraska Union Farmer,^* there were 
at the beginning of April, 1920, 150 genuinely cooperative 
elevators, organized through the Farmers Union activity.^^ 

The organization, known as the American Society of 
Equity, was founded by Mr. J. A. Everett, at Indianapolis, 
Ind., Dec. 24, 1902. Its present national headquarters are 
at Madison, Wisconsin. The structure and activities of this 
Society, are very similar to those of the Farmers* Union. 
It comprises a national organization, state, county, and 
local unions. Seven persons qualified for membership, may 
organize a local union; five chartered local unions may 
organize a county union ; and five county unions may unite 
into a state union.^^ The total membership of the Society 
was about 40,000 at the beginning of 1921. ^^ It has a scat- 
tered membership in Minnesota, North Dakota, Michigan, 
Iowa, and Illinois, but its stronghold is in Wisconsin, where 
the state union has a membership of about 30,000.^® 

The objects of the State Union as expressed in the con- 
stitution are: 

To obtain profitable prices for all products of the farm, garden, 
orchard, and dairy. 

To have built and maintained granaries, elevators, warehouses, 
and cold storage houses on the farms, in the principal market cities, 
and in all places where necessary so that farm produce may be stored 
and preserved to obtain equitable prices. 

To secure legislation in the interest of agriculture. 

To secure and disseminate information regarding market prices, 
transportation, routing, and service. 

To encourage cooperative business activities and collective bargain- 
ing by central advisory agency to be located at State headquarters. 

To secure better educational advantages in our rural districts. 



2* This is the official organ of the Nebraska State Union. 

26 Maurice H. Weseen, The Cooperative Movement in Nebraska, p. 479. 
in "Journal of Political Economy" (April, 1920). 

2* Constitution and By-laws. 

27 J. F. Shaw, editor of the Equity News, in letter to writer. 
^^ Ibidem. 



AGENCIES PROMOTING COOPERATIVE MARKETING 77 

To improve our highways. 

To prevent adulteration of food and marketing of same. 

To promote sociability. 

To encourage arbitration of differences, disputes, etc. 

Hence, its purpose is very much wider than that of pro- 
moting cooperative grain marketing, but through its direct 
activity and encouragement, many cooperative elevator 
companies have been organized in the Northwest.^* 

Another organization that has taken an active part in 
furthering cooperative grain marketing in the North Cen- 
tral States is the Farmers' Equity Union. It was founded 
by Mr. C. 0. Drayton, at Greenville, Illinois, and was 
chartered under the laws of that State, on Dec. 16, 1910. 
As stated in a brochure by the National Secretary, Mr. 
Leroy Melton, "the purpose of this organization is to unite 
the buying and selling power of a large number of farmers 
and consumers in one body and eliminate a large share of 
the middleman's profit"^^ The Equity Union is repre- 
sented in 13 states, and had a membership of 33,000 at the 
beginning of 1921.^^ 

The Farmers' Equity Union is composed of three distinct 
parts, the national union, centralized companies, and local 
exchanges. The national union is governed by a board of 
directors, who are elected annually by the delegates at the 
national convention. Each local exchange that has paid its 
dues to the national union, has a right to be represented by 
a delegate. The primary object of the national union is to 
organize local exchanges ; to educate its members to the ad- 
vantages of cooperative buying and selling; and to be the 
guiding force of the organization. The centralized com- 
panies are corporations established in the central markets. 
The type of business engaged in by these, depends upon the 
particular local exchanges they are to serve. In Kansas 
City, for instance, the centralized company is a grain com- 
mission firm. 



^^ Ibidem; Cf. John F. Sinclair, Opus cit. p. 31, 
^^ The Equity Union, Its Plan and Purpose, p. 1. 
'1 Leroy Melton in letter to writer. 



78 THE COOPERATIVE ELEVATOR MOVEMENT 

The local exchanges are corporations founded at local 
market points. Just as the business of the centralized com- 
panies is determined by the particular local exchanges they 
are to serve, so the type of business engaged in by the local 
exchanges is determined by the needs of the community. 
If an exchange is to be established in a dairying section, 
the corporation will take the form of a cooperative cream- 
ery company; if the section is one where grain is ex- 
tensively grown the organization will be a cooperative 
grain elevator company. 

In the North Central States, the local exchanges were 
distributed as follows, at the beginning of 1921: South 
Dakota, 44; North Dakota, 24; Nebraska, 38; Indiana, 26; 
Ohio, 78; Kansas, 62; Illinois, 30; Missouri, 2.^^ Many of 
these local exchanges are cooperative elevator companies. 

The influence that these rural organizations, just briefly 
described, exert in promoting cooperative grain marketing, 
is not easy to trace in terms of definite results. Without 
doubt it is much wider than that of merely being instru- 
mental in bringing about the establishing of local com- 
panies. All of them publish journals in which cooperative 
marketing is stressed; and all of them in various ways at- 
tempt to arouse the farmer to the need of organized effort 
in his business affairs. They also promote legislation 
facilitating the organization and operation of cooperative 
business enterprises, and in this way contribute toward 
placing the cooperative elevator movement on a firmer 
basis. 

A very recent organization, founded to advance the in- 
terests of the agricultural population, especially the grain- 
growing section of it, is the Non-partisan League. Un- 
like the previous associations described in this chapter, it is 
political in character. The immediate cause for its found- 
ing centers around a controversy which had raged in North 
Dakota for some years, concerning the question whether 
the State should engage in the business of owning and 



^2 Ibidem. 



AGENCIES PROMOTING COOPERATIVE MARKETING 79 

operating terminal grain elevators. It was the opinion of 
the farmers, who constitute almost 70 per cent of the 
population, that the State should do so. But the taking of 
such a step would have been contrary to the State Consti- 
tution. To meet this difficulty the Constitution was 
amended, and in accordance with the prevailing view that 
the State-owned elevator should be located at Minneapolis 
or Duluth, the principal grain markets for North Dakota 
grain, the amendment gave permission to the government 
to own and operate a terminal elevator outside of the State. 
In the meantime sentiment changed in favor of the ele- 
vator's being located within the State boundaries, but since 
the previous amendment did not confer this right, the pass- 
ing of another amendment was necessary. Several years 
elapsed before the two amendments were passed, and thus 
the launching of the project which the farmers considered 
necessary for their well-being, was deferred. Upon the 
passage of the second amendment, the State Legislature 
selected a committee to investigate the advisability of the 
State's engaging in such an enterprise. The report of the 
committee was unfavorable as to erecting a State-owned 
terminal elevator either within or outside of North Dakota. 
It was at this juncture, in 1915, that the farmers, under the 
leadership of Mr. Arthur C. Townley, formed the Non- 
partisan League.^^ 

While the immediate cause of the origin of the League 
centers around the controversy just mentioned, the funda- 
mental cause is found in the dissatisfaction of the farmers 
of the State with the spread between the price of grain that 
they received and that paid for grain products by the ulti- 
mate consumer. This spread they considered entirely too 
large,^* chiefly in their opinion, because of the ''magic of 
the mixing houses,'* ^= the terminal elevators of Minneapolis 



83 Frank O'Hara, The N on-Partisan League of North Dakota, a Study 
and Outlook, pp. 8, 9; Charles Edward Russell, The Story of the Non- 
partisan League, A Chapter in American Evolution, pp. 102-108. 261 ; 
Senator Ladd, Congressional Record, 67th Cong., 1st sess., Vol. 61, No. 18. 
p. 882 (May 2. 1921). 

34 O'Hara, Opus cit. p. 8 ; Russell, Opus cit. Chapters III, IV, and IX ; 
Senator Ladd, ibidem. 

86 Russell, Lac. cit. p. 34. 



80 THE COOPERATIVE ELEVATOR MOVEMENT 

and Duluth. Similarly, they considered the spread too 
large between the prices paid for the higher and lower 
grades of grain. ^*'' To correct the first of these evils, they 
thought it necessary that the State own and operate the 
"mixing houses" for the grain grown in North Dakota, and 
to correct the second, they demanded a new grain grading 
law. Since these measures could not be secured from the 
men in political power at the time, the alternative that 
remained in their opinion, consisted in forming themselves 
into an organization which would bring into political 
power men who would carry out their demands. This 
twofold purpose to be achieved through political action, 
constituted the immediate program of the Non-partisan 
League at its founding. 

Although political in character, the Non-partisan League 
is not a distinct political party in the ordinary acceptation 
of that term. Rather should it be called "a political ma- 
chine in which the paying members theoretically have a 
votce in selecting the leaders, * * * decide upon the 
policies of the organization and appoint men who are to 
be supported in the election. It is then the duty of the 
members and of their friends to see that the persons chosen 
by the machine shall be supported in the election." ^^ 
The League is non-partisan in so far as it will support 
the candidates of any political party provided they seek 
to further its aims. 

The Non-partisan League met with ready favor immedi- 
ately upon its founding,^^ and its growth since then has 
been very rapid. According to Mr. Russell it had 245,000 
dues-paying members on October 1, 1919, was organized 
in 13 States, and had three Representatives in Congress.^^ 

The first political victory of the League in North Dakota 
occurred in the election held in the fall of 1916, when it 



3«0'Hara, Loc. cit. p. 8; Russell, Loc. cit., Chapter V; Senator Ladd, 
Ibidem. 

37 O'Hara, Opus cit. p. 9. 

38 Ibidem. 

89 Opus cit. p. 323. 



AGENCIES PROMOTING COOPERATIVE MARKETING 81 

gained control of the executive and of part of the legisla- 
tive branch of the government through the election of 
Governor Frazier and of a large number of State Represen- 
tatives. This victory v^as made complete in the election of 
1918, when all the departments of the government came 
under the control of men endorsed by the League. It was 
now in a position to enact its political program. A State- 
owned mill and terminal elevator were authorized as also 
the State-owned bank, which has received more publicity 
than any other feature of the program and which is a 
unique institution in this country. An Industrial Com- 
mission was created, consisting of the Governor, the At- 
torney-General, and the Commisioner of Agriculture and 
Labor, to supervise all the public utilities. Another bill en- 
acted into law, created the office of State Inspector of 
Grades, Weights, and Measures.*^ A system of State hail 
insurance and a home building association were likewise 
authorized and established. 

The foregoing measures were intended primarily for 
the benefit of the farmers of the State. Among laws deal- 
ing with other phases of industry, we may mention the 
workmen^s compensation act ; a minimum wage for women ; 
a restriction of the hours of employment for women to 
eight; the prohibition of child labor; the prohibition of the 
use of the injunction in labor disputes; and the right of 
picketing in case of a strike. 

Some of the measures, especially those mentioned in the 
last paragraph, represent no departure from legislation 
in other States. This of itself does not, indeed, give them 
the stamp of approval, but it at least frees them from the 
accusation of being novel and radical. The measures in- 
tended primarily for the benefit of the farmers, are ex- 
perimental in the sense that they have not been previously 
tried in this country. Their soundness is being tested by 
experience. As Professor O'Hara remarks in his study of 



*<> Dr. Ladd, the present Senator from North Dakota, held tkis office 
for a time. 



82 THE COOPERATIVE ELEVATOR MOVEMENT 

the League: 'There is no compelling reason against the 
State of North Dakota undertaking to run a State bank 
or to own and operate a system of State flour mills and 
grain elevators and packing plants. These industries are 
industries in which the people are vitally interested and 
they will watch them closely. This particular experiment 
has as good a chance for success in North Dakota as in any 
State. From the point of view of a laboratory for social 
experiment, therefore, no better place could be found." ^^ 

It is doubtful whether the Non-partisan League will 
continue to grow at the rate that it has grown in the 
past. Considerable friction has existed among its leaders 
for some time. There has been a strong revolt from the 
leadership of Townley and others of the socialistically in- 
clined.'^^^ The most recent development in North Dakota, 
the stronghold of the League, is the ousting of Lynn 
Frazier, the Governor, William Lemke, the Attorney-Gen- 
eral, and J. N. Hagan, the Commissioner of Agriculture 
and Labor, in the recall election held October 28, 1921. 
This defeat is the more serious because these three officers 
constitute the personnel of the Industrial Commission, 
through the control of which the League was largely exer- 
cising its sway over the politics of the State. On the other 
hand, the several measures submitted to the voters at the 
same election, were sustained as advocated by the League. 
The result of the election would then seem to indicate that 
the farmers still subscribe to the fundamental issues of 
their program, but that they have become dissatisfied with 
their leaders and their methods. 

In describing the attitude of the Non-partisan League 
toward cooperative grain marketing, a distinction must be 
drawn. The League favors the founding of local coopera- 
tive elevator companies. The main abuses of the grain 
trade, however, according to their view, center in the 



*i Opus. cit. p. 18. 

*2 The most prominent of those breaking away from this leadership, is 
William Langer, the former Attorney-General. See his work, The Non- 
partisan League; Its Birth, Actiznties and Leaders. 



AGENCIES PROMOTING COOPERATIVE MARKETING 83 

terminal markets, and these abuses can best be eliminated 
through State-ownership and operation of the marketing 
facilities located there. In this the ideal of the Non-parti- 
san League is a departure from that of the cooperative 
elevator movement. The latter would have the ownership 
of these facilities vested, not in the State, but in the local 
companies, either through centralized associations or 
through a national association, such as the U. S. Grain 
Growers, Inc. 

The most recent national organization, designed to ad- 
vance the interests of the agricultural population of this 
country, is the American Farm Bureau Federation, founded 
at Chicago, March 4, 1920.^^ This federation represents 
the natural outgrowth of State farm bureau federations, 
which in turn are a development of county farm bureaus, 
the first of which was organised in 1911. The objects of 
the federation as stated in one of its brochures, are : 

"To develop, strengthen, and correlate the work of the State Farm 
Bureau Federations of the nation; to encourage and promote coopera- 
tion of all representative agricultural organizations in every effort to 
improve facilities and conditions for the economic and efficient produc- 
tion, conservation, marketing, transportation, and distribution of farm 
products; to further the study and enactment of constructive agricul- 
tural legislation; to advise with representatives of the public agricul- 
tural ~ institutions cooperating with Farm Bureaus in the determination 
of nation-wide policies, and to inform Farm Bureau members regarding 
all movements that affect agriculture." ** 

From this comprehensive statement of its aims, it is 
readily seen that the scope of the federation is very wide. 
It does not purpose to displace existing rural organizations, 
but to assist them in carrying out their local interests and 
to unite them as far as possible on national issues for the 
advancement of agriculture and rural life. 

The fundamental units of the federation are the county 
bureaus, of which there were more than 1,600 on December 



*^ See pamphlet issued by the federation, American Farm Bureau Federa- 
tion; What is it? 
** Opus. cit. p. 16. 



84 THE COOPERATIVE ELEVATOR MOVEMENT 

1, 1920.*^ The county bureaus may unite into State federa- 
tions, and they in turn may become members of the na- 
tional body, which is represented in 37 States and claims 
a membership of more than 1,000,000.*^ 

Control of the federation rests in a board of directors, 
elected by the State federations and other organizations 
eligible to membership. Each affiliated State association 
is entitled to one director, a number which may be in- 
creased provided the State federations in question meet the 
specified requirements. Each director must be a bona fide 
farmer, and he has equal voting power on all questions 
with other directors.*^ 

The board of directors elects all of the officers of the 
federation, except the secretary and treasurer.*^ These are 
elected by the executive committee, which in turn is elected 
by the board of directors from its own members,*^ The 
executive committee consists of twelve members, who hold 
office for one year, and have charge of the administrative 
affairs of the federation. Three members of the executive 
committee must be chosen from the Northeastern States, 
three from the Middlewestern, three from the Southern, 
and three from the far Western States.^^ 

The funds necessary to carry on the projects of the 
federation are supplied by annual dues. "The annual dues 
of each member State in the American Farm Bureau 
Federation shall be fifty cents per capita of the individual 
County Farm Bureau membership affiliated with the State 
organization, provided that in States not having member- 
ships the dues shall be fixed by the Executive Committee 
in reasonable proportion to the other States." ^^ 

There are seven departments through which the federa- 
tion carries on its activities. The Organization Depart- 



^^ Loc. cit. p. 3. 
^« Ibidem. 

47 Constitution, Art. IV, Sec. 1 and 2. 

48 Loc. cit., Art. VII, Sec. 2 and 3. 
4^ Ibidem, Sec. 5 and 6. 

^^ Ibidem, Art. VIII, Sec. 1. The states comprised under each division 
are indicated in Sec. 2. 
61 Ibidem, Art. V, Sec. 1. 

I 



AGENCIES PROMOTING COOPERATIVE MARKETING 85 

ment is intended to serve as a means of increasing the 
membership, and strengthening the stability of the federa- 
tion. The Legislative Department, located at Washington, 
D. C, is designed "to safeguard the rights and interests 
of the farmers and to assert his needs whenever occasion 
requires in matters pertaining to legislation.'* ^^ It is the 
object of the Department of Transportation to represent 
the agricultural interests in the transportation of farm 
products. The Department of Economics and Statistics 
deals with "improved cost accounting methods for farmers, 
crop statistics and forecasts, price and credit analyses, 
crop conditions, weather conditions, tendencies in tariff, 
merchant marine, internal revenue, ocean freight, cost of 
production, etc." ^^ The financing of the federation is under 
the control of the Finance Department. The Department 
of Education and Publicity seeks "to keep the general 
public sympathetically informed as to the ideas and accom- 
plishments of organized agriculture."" The issuing of 
weekly news letters and of feature stories to the agricul- 
tural press, the distribution of pamphlets and speeches 
dealing with agricultural subjects, are also among the 
activities of this department. To these departments, one 
more must be added, namely, that of Cooperative Mar- 
keting. This department aims to give assistance to com- 
munities desirous of organizing cooperative business en- 
terprises, and to unite these enterprises on a national 
basis. It was under the auspices of the American Farm 
Bureau Federation that the conference was called that 
elected the Committee of Seventeen, which has elaborated 
the plan for placing cooperative grain marketing on a 
national basis." 

The work done in the interest of cooperative grain mar- 
keting by the various State Agricultural Colleges, the State 
Departments and especially by the U. S. Department of 



^^ American Farm Bureau Federation; What is it? p. 6. 

ea Opus cit. p. 7. 

«4 Loc. cit. p, 8. 

^^ Loc. cit. p. 6. For an extensive treatment of the American Farm Bu- 
reau Federation the reader is referred to the very recent work. The Farm 
Bureau Movement, by Orville Kile. 



86 THE COOPERATIVE ELEVATOR MOVEMENT 

Agriculture, cannot be easily overestimated. As stated in 
one of its Bulletins, the U. S. Department of Agriculture 
"considers cooperative organization a primary and funda- 
mental project * ♦ * a corrective measure that will 
place the industry upon a solid basis." ^® The Office of 
Markets and Rural Organization has devoted considerable 
attention to the subject of cooperative grain marketing. 
Through visits and correspondence of its personal repre- 
sentatives it has given advice and guidance to those com- 
munities contemplating the formation of a company. In 
conjunction v^ith representatives of the farmers' state 
grain dealers' associations it has elaborated a set of by- 
laws, the adoption of which these associations urge upon 
farmers wishing to organize a company." It has likewise 
perfected a simplified accounting system,^^ which many 
companies have adopted. In a similar manner the State 
departments of agriculture through their various branches 
have given assistance to the movement.^^ 



5« Bassett, Moomaw, and Kerr, Opus cif. p. 210. 

5^ This set of by-laws may be found in Mehl and Jesness, Opus cit. 

58 L. D. Wdd, Opus cit. p. 11; Erdmann, Opus cit. 152. 

5» See Jesness and Kerr, Opus cit. pp. 59-60. See also list of publica- 
tions issued by the U. S. and State Departments, as quoted at end of 
treatise. 



CHAPTER V 

RESULTS ACHIEVED THROUGH COOPERATIVE 
GRAIN MARKETING 

The grain growers of the North Central States evidently 
would not have entered upon marketing their grain co- 
operatively if the hope of economic gain had not prompted 
them to do so. The question, therefore, at once presents 
itself: How far has their hope been realized? What 
have been the benefits, if any, accruing to them as a result 
of engaging in this form of enterprise? While upon the 
answer to this inquiry does not necessarily depend the 
verdict as to the expediency of cooperative grain market- 
ing, nevertheless, if the growers through marketing their 
grain cooperatively have not secured for themselves eco- 
nomic gains commensurate with the efforts and sacrifices in- 
volved, then cooperative grain marketing is either unfeasi- 
ble or some essential factor of success has been overlooked 
in its application. 

The results achieved, however, are such as to warrant 
the conclusion that cooperative grain marketing has been 
successfully conducted. In most of the country places 
where cooperative elevator companies have been estab- 
lished, they have been most important factors in maintain- 
ing competitive conditions in the buying of grain and even 
in places where no such companies exist, they have had 
an appreciable influence on the price paid for grain through 
what is known as potential competition. While being 
strong competitive factors, they have also been able to 
return dividends to their members or patrons, which com- 
pare favorably with those realized by other types of ele- 
vator concerns. But apart from the benefits of an economic 
kind, the cooperative companies have been the means of 
raising the social and cultural status of the communities 
in which they have been established. To review in de- 
tail these results, namely, the economic, the educational 
and the social, is the scope of the present chapter. 

87 



88 THE COOPERATIVE ELEVATOR MOVEMENT 

The fundamental reason inducing the grain growers to 
organize cooperative marketing associations during the 
period between 1895 and 1905, was the conviction that the 
price paid for grain at country stations was not determined 
by the free play of demand and supply, and that conse- 
quently they were not getting the price their grain was 
worth. But was this evil situation remedied through co- 
operative marketing? Did the elevator companies of that 
period succeed in restoring competitive conditions in those 
places where they were established, and if so, in how far 
was the price of grain increased as a consequence? 

There is no doubt that the cooperatives, especially those 
operating under the "penalty clause," set a level of prices 
which the line companies and independent dealers found it 
difficult to meet. This was admitted by representatives 
of the line companies in the investigation conducted by the 
Interstate Commerce Commission in 1906. Mr. Marcy,^ 
referring to the competitive character of those companies 
operating under the penalty clause, said: "It is mighty 
hard competition to go up against. Whenever I hear of a 
farmers' elevator starting in, I always try to sell them 
our elevator." ^ This is a plain recognition on the part of a 
representative of a large line elevator company that the 
competition offered by the cooperatives was of a keen char- 
acter. Mr, Wells, then secretary of the Iowa Grain Dealers 
Association, in referring to those companies with a penalty 
clause, offered similar testimony. "The consequence" of 
the operation of the penalty clause "is that there is no mar- 
gin of profit maintained by which to pay expenses, and 
the price is established with which the grain dealer must 
compete, and, in fact, he must pay more, because he is 
placed at a disadvantage, and the consequence is he cannot 
secure profits to pay his expenses." ^ 

This testimony would, therefore, appear to indicate that 
the companies operating under the penalty clause, set a 



1 He was the business manager of the Neola Elevator Company, which 
owned a large number of elevators in Iowa, Nebraska, and South Dakota. 
^Sen. Doc. No. 278, 59th Cong. 2d sess., p. 175. 
3 Opus cit. p. 678. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 89 

level of prices for their competitiors which the latter found 
it difficult to maintain. And apparently most of the com- 
panies operated under this clause toward the beginning 
of 1904. But why should it be precisely the penalty clause 
that was producing this effect? As long as the line com- 
panies and independent dealers did not attempt to with- 
draw patronage from the companies collecting penalties, 
so long they evidently were not compelled to pay higher 
prices. If the line companies and independent dealers were 
forced to pay higher prices than the cooperatives, the ex- 
planation is very probably to be sought in this, that the 
cooperatives individually handled a considerably larger 
volume of grain annually than did the former. Upon this 
supposition it is explainable that the companies enforcing 
the penalty clause, compelled the other dealers to pay 
higher prices for grain than they did themselves. If the 
cooperatives handled considerably more grain, their costs 
of operation per bushel were correspondingly decreased. 
On the other hand, the line companies and independent 
dealers, with greater costs of operation per bushel because 
of the lesser volume of grain that they handled individu- 
ally, were compelled to raise the price above that paid by 
the cooperatives, if they wished to withdraw patronage 
from the latter. This excess of price had to be equal at 
least to the rate of assessment, or the penalty, prevailing 
am.ong the cooperatives. Otherwise their members would 
have no incentive to haul their grain to a competing con- 
cern.* Under these conditions, the line companies and in- 
dependent dealers were at a disadvantage in bargaining for 
grain. Fundamentally, however, it was not the penalty 
clause, it would seem, but the fact that the cooperatives 
handled a larger volume of grain than their competitors 
that compelled the latter to pay higher prices than the for- 



* If the cooperative company paid $1.00 per bushel for grain and if the 
rate of assessment was two cents per bushel for every bushel marketed with 
a competing concern, the competitor of the cooperative company would 
have to pay above $1.02 per bushel before he could hope to withdraw 
patronage from the cooperative company. Even then the members might 
not be inclined to sell to a competitor if they had prospects of realizing 
dividends through their trade with their own company. 



90 THE COOPERATIVE ELEVATOR MOVEMENT 

mer. This view finds direct confirmation from the testi- 
mony of Mr. McDougal,'^ who speaks of the cooperatives 
in general, whether operating under the penalty clause or 
not: "The farmers* elevator is very hard competition for 
the reason that its membership includes virtually all of the 
farmers that ship regularly through that station, and they 
naturally monopolize their own firm." '^ Here the cause 
for the severity of the competition of the cooperatives is 
not ascribed to the penalty clause, but to the fact that most 
of the farmers of those communities having a cooperative 
elevator company, contributed their grain to it instead 
of to rival concerns. 

Assuming then that competition was as a rule consider- 
ably increased at a country station as a result of 
establishing a cooperative company, what increase in price 
did this heightened competition effect? Mr. Stickney,^ 
when questioned during the investigation of the Interstate 
Commerce Commission in 1906, as to what influence the 
140 then existing companies in Iowa had exercised upon 
the market at points where they were situated, replied: 
**The only thing I know is what they have told me — the 
stockholders and directors of these different organizations. 
I think I have been at every station in Iowa where they have 
a cooperative grain company and they have agreed that 
their organization has raised the price of grain at each 
station all the way from three to six cents a bushel. * * * 
I have never been at one of these places where they have 
placed the advance at less than three cents — very often 
it is six cents a bushel." ^ When further questioned as to 
whether he meant that there was more paid at those towns 
than at other points where there was no cooperative ele- 



5 Superintendent of the elevators owned by the Neola Grain Company in 
Iowa. 

^ Sen. Doc. Loc. cit. p. 710. 

'^ Mr. Stickney was soHcitor at the time for the grain commission firm, 
Lowell, Hoit & Co., one of the two firms in Chicago that did not refuse 
to accept consignments of grain from the cooperatives at the time when a 
boycott was attempted upon those firms accepting such grain. Mr. Stick- 
ney's attitude toward the cooperatives is a very friendly one. He personally 
assisted in organizing a number of these companies in Iowa at the time. 

^ Sen. Doc. Loc. cit. p. 17. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 91 

vator, he replied that this was the way in which the stock- 
holders and directors arrived at their conclusion; they 
would compare the price paid at their town with that 
paid at a town 10, 20, or 30 miles distant.'' Similar testi- 
mony was offered by several managers of cooperative com- 
panies, in testifying before the same commission. Some 
stated that immediately after their company was organized 
the competitors at that particular country station raised 
the price from two to four cents a bushel.^*^ Others testi- 
fied that the price paid by competitors in comparison with 
the Chicago market price was three to five cents higher 
than had prevailed before the cooperative companies had 
been organized at these country stations. ^^ 

These are of course only estimates and at that the esti- 
mates of those who would naturally be inclined to think 
that the cooperative companies were of great benefit to the 
producers. Nor would these estimates assure us that the 
same results were everywhere obtained. Even were it 
granted that immediately upon establishing a cooperative 
company, the price was increased from one to three or even 
to six cents per bushel, it does not necessarily follow that 
the farmers received a net increase equalling that amount. 
It is possible that the line companies and independent 
dealers upon raising the price, compensated themselves 
at least to some extent by underweighing, undergrading, 
and over-docking the grain. The cooperative companies 
may have followed the same policy. There is no evidence 
that this practice was resorted to, but the possibility of it 
shows that the met increase in price may have been con- 
siderably less than the actual price quotations of the testi- 
mony offered above, would indicate. In short, from avail- 
able data, it is impossible to determine with exactness what 
net increase in price the farmer may have received for his 
grain as a result of establishing his own marketing facili- 
ties. The fact, however, remains that pooling and price 



^ Ibidem. 

^^Ot»is cit. pp. 47, 495, 571, 706. 

11 Loc. cit. pp. 7, 732. 



92 THE COOPERATIVE ELEVATOR MOVEMENT 

agreements were widespread among the line companies 
and the independent dealers during the period under con- 
sideration, and *'some grain men, at least, have admitted 
that in the early days many of the older types of elevators 
exacted altogether too large a margin." ^^ These considera- 
tions together with the estimates offered above, in turn 
lend probability to the view that the result of establish- 
ing a cooperative elevator company was frequently to raise 
the price to the extent of yielding a net increase of profit 
from one to three cents per bushel for all the grain growers 
of the community.^ ^ 

The cooperative elevator companies have not ceased to 
be important factors in maintaining competitive conditions 
in country grain marketing. Of this there can be scarcely 
anly doubt in view of the recent extensive survey of the 
grain trade by the Federal Trade Commission. This sur- 
vey "revealed numerous indications that the mill, and es- 
pecially the farmers' or cooperative elevators are the most 
serious factors in country competition. Both of these types 
frequently embark upon policies in prices, grades, dock- 
age, etc., that have little or no reference to the policies 
of their independent or commercial line competitors." ^* 

These words just quoted apply to the cooperative grain 
companies of North Dakota, South Dakota, and Minne- 
sota.^'' The information secured from the other North 
Central States was "much less complete and significant," 
nor could information to this effect have been obtained 



12 Report of the Federal Trade Commission on the Grain Trade, Vol. I, 
Country Grain Marketing, p. 86. 

13 It is quite probable that the farmers who were not members of the co- 
operative companies, were frequently greater beneficiaries than the members 
themselves. Apparently competition became so keen between the co- 
operatives and their competitors that profits were cut down to a minimum. 
Under these conditions "making profits was subordinated to the more vital 
problem of maintaining solvency." To this hazard the non-members were 
not subject, and besides they were free in shifting their patronage from one 
to the other as either the cooperative company or its competitors paid 
higher prices. 

1^ Opus cit. p. 260. The Report devotes about seventy-five pages to a 
description of competitive conditions in country grain buying. 
^^ Loc. cit. p. 243. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 93 

^'without a large expenditure of time and money and with 
no certainty that the results would justify such expendi- 
ture." ^^ There may be a possibility, therefore, of course 
that the cooperative elevator companies of the other North 
Central States are not such important factors as those 
in the States already mentioned. There is, however, no 
positive evidence to support this view. The reasons ad- 
vanced by the commission for the severity of cooperative 
competition were: the more or less unfriendly attitude of 
the farmers and their organizations toward the commercial 
line companies, their friendly attitude toward their own 
companies, and the inducement of stock and patronage 
dividends.^^ These same reasons are operative in all of 
the North Central States. Furthermore, it must be re- 
membered in as far as the commission did receive informa- 
tion for the States not specifically mentioned above, it was 
to the effect that a considerable degree of competition pre- 
vailed at most country stations and that the cooperatives 
were the most serious factors in its maintenance.^^ 

The influence of the cooperative elevator companies as 
competitive factors is not restricted to the communities in 
which they are located. Even in places where no com- 
pany has been organized they are exerting an appreciable 
influence in maintaining at a competitive level the price 
paid for grain. This is corollary which may be deduced 
directly from the status and the trend of the cooperative 
movement. The growth in the number of elevator com- 
panies owned and operated by the producers themselves 
is an outstanding development in the marketing of grain 
within recent years. This growth is evident indication 
that the farmers are more and more looking toward the 
formation of cooperative marketing associations as means 
of insuring greater net returns for their grain. This at- 
titude reacts upon the established grain dealers in the 



i« Loc. cit. p. 244. 

^"^ Loc. cit. pp. 264-266. 

18 Loc. cit. pp. 18, 244. 



94 THE COOPERATIVE ELEVATOR MOVEMENT 

form of potential competition. They realize that if they 
offer prices which appear unfair, dissatisfaction will re- 
sult among the grain growers of that locality. The matter 
will very likely come under investigation, and if the sus- 
picion of unfair prices is found to rest on fact, the probable 
outcome will be that a cooperative elevator company will 
be organized as a means of redress. Hence, the fear of 
competition through the establishing of new companies, 
will frequently deter grain dealers from exacting too wide a 
margin of profit on grain.^^ 

With the growth of the cooperative elevator movement, 
competition has likewise been restored among the commis- 
sion firms in the terminal markets. During the early days 
of the movement, commission firms, intimidated by the 
State Grain Dealers Associations, hesitated to accept con- 
signments of grain from the cooperatives for fear that 
they should be boycotted by other dealers. Today these 
firms are vying with one another in soliciting their trade. 
The American Cooperative Journal as also the Manager 
from time to time publish lists of commission firms solicit- 
ing grain from the cooperative companies.. In these lists 
may be found commission firms from Buffalo, Chicago, 
Duluth, Kansas City, Milwaukee, Minneapolis, Omaha, 
Peoria, St. Louis, Toledo, Wichita, etc. From this enumer- 
ation of cities, it is readily seen that these companies have 
plentiful facility for consigning their grain to advantage- 
ous market centers. To the fact that commission firms 
are willing and anxious to accept consignments from all 
responsible grain dealers, present competitive conditions 
in country grain buying must in no small measure be at- 
tributed. No local buyer need enter agreements of any 
kind for fear of being unable to find a market for his grain 
in the terminal cities, as was the case when the State Grain 
Dealers Associations through their affiliated commission 



^^Cf. opus cit. p. 248. Speaking of existing elevators refraining from 
exacting too wide a margin because of the fear of potential competition be- 
coming actual, the Report says: "Especially is this true in the event that a 
farmers' house is organized, for such a house by virtue of a large number 
of farmer stockholders or patronage dividends, or both, will almost in- 
evitably cut heavily into the receipts of the other houses." 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 95 

firms boycotted the country grain dealers who refused 
to comply with their demands. 

While it is true that the cooperative elevator companies 
are in general important factors in maintaining competi- 
tion in country grain buying, even in places where no such 
companies exist, this statement needs important qualifica- 
tion. The investigation of the Federal Trade Commission 
revealed that there are ^'frequently stations at which com- 
petition is either insignificant or non-existent on account 
of local or other agreements among purchasing elevators 
or other factors." ^^ To these agreements the cooperative 
companies are frequently partners, ''though they appear 
less inclined than the others to enter such agreements." ^"^ 

Since this chapter deals with the cooperative elevator 
movement in its results and benefits, the question naturally 
suggests itself as to how far this practice of entering price 
agreements with other dealers is beneficial or detrimental, 
both to the company resorting to this practice and to the 
other grain growers of the community. To gauge accurately 
these results is no easy task. It may, however, be presup- 
posed that such practice redounds to the economic advant- 
age of the company as a collective body. It is, indeed, easy 
to conceive of a situation in which it would be unwise 
for a company to pursue such a policy. The feasibility of 
it, in short, depends upon circumstances,^^ and it is not 
to be expected that a company resorts to such practice out 
of philanthropic motives. Let it be presupposed then, that 
the practice under the given conditions is economically ad- 
vantageous to the company and furthermore that the 
profits accruing as a result are not taken fraudulently by 
a particular group, but are distributed to all the members 
or patrons upon the basis provided for in the by-laws. Do 



20 Opus cit. p. 244. 

21 Opus cit. p. 245. 

22 The mere fact of a company's paying less than competitive prices, other 
things being equal, need not be detrimental to the company as a collective 
body. The less it pays for grain the more profits will it be able to dis- 
tribute at the end of the year in the form of dividends on stock or 
patronage, or both. 



96 THE COOPERATIVE ELEVATOR MOVEMENT 

all the members in this instance share equally in such 
profits ? 

An important distinction must here be drawn between 
those companies that distribute their profits on the basis 
of dividends on stock and those that distribute them on 
the basis of patronage. It may be said in general that 
in the latter type all the members will share equally in 
the profits arising out of price agreements because the 
profits stand in direct proportion to the amount of grain 
that each member contributes to the company. The indi- 
vidual member will generally recoup in the formx of profits, 
the losses he may have sustained in the form of lower 
than competitive prices.^^ The condition of the members is 
different in those companies which distribute their profits 
on the basis of capital stock. Also in these companies if 
each member held stock in direct proportion to the amount 
of grain he markets with the company, all would share 
equally in the profits arising out of price agreements be- 
cause in that instance the condition of each member would 
be identical with that of the members of a company in 
which profits are pro-rated on the basis of patronage. But 
the exact proportion between the amount of stock held 
and the amount of grain contributed, is without doubt 
scarcely ever realized. And in these companies, the mem- 
ber whose amount of stock invested is less proportionally 
than the amount of grain he contributes, not only does 
not share equally in the profits arising out of price agree- 
ments but suffers a financial loss, the extent of which is 
measured by the excess of his patronage over his invested 
stock. He, indeed, receives the same rate of dividend as 
all the other members, but his total profits will be less than 
if he had received the competitive price for his grain. 

That the other grain growers of the community who 
are not members of the company, suffer financial loss on 
account of price agreements, is evident, provided there are 
no dealers at that particular country station who offer 
competitive prices. These farmers are no beneficiaries of 



23 This statement rests on the assumption that the terms of the price 
agreement bear equally on the different kinds and quality of grain. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 97 

dividends on stock or patronage. The price they receive 
for their grain, whether this be the competitive price 
or a lower one, determines the total of their profits. 

The general conclusion then that may be drawn is this: 
Price agreements on the part of cooperative companies 
with other dealers need not result in financial loss to the 
individual members although it is likely that this will oc- 
cur in those companies in which profits are distributed 
on stock because of the almost inevitable disparity be- 
tween the amount of stock owned and the amount of grain 
contributed by each member; but in every case the farm- 
ers of the community who are not members or patrons 
of the company, suffer financial loss on account of price 
agreements because the price they receive for grain deter- 
mines the total of their profits. 

Having considered the cooperative elevator companies 
in their competitive aspect, it is now in order to inquire 
whether they have been successful as business enterprises. 
To be worth while from an economic point of view they 
must be able not only to pay a price for grain prevailing 
under conditions of fair competition, but besides providing 
a fund for depreciation and expenses, they must be able to 
return the current rate of interest on the investment 
and provide such other gains as will compensate the mem- 
bers for the efforts and sacrifices entailed. If the com- 
pany cannot do this, then why assume the financial hazards 
of operating an elevator. 

The rapid increase in the number of cooperative elevator 
companies within recent years, and on the other hand, 
the relative decline in the number of elevators owned by 
the line companies and the independent dealers, would lead 
one to think that the former have certain advantages over 
their competitors. By analyzing the costs of operating a 
country grain elevator these advantages, if any exist, 
should appear. 

There are many expense items in operating a grain 
elevator which remain fairly constant regardless of the 
amount of grain handled. Such items are the salary of 



98 THE COOPERATIVE ELEVATOR MOVEMENT 

the manager, interest on the investment, insurance, de- 
preciation and taxes. The greater, therefore, in general 
the amount of grain handled, the lower the costs of opera- 
tion per unit. Estimates obtained by the Office of Markets 
and Rural Organization in 1914, showed that the cost of 
operating varied from one to five cents per bushel, the aver- 
age cost being 1.98 cents for houses handling less than 200,- 
000 bushels; 1.28 cents for houses handling more than 
200,000, the general average being 1.85 cents. -^^ Professor 
Weld, in his survey of cooperative elevators in Minnesota, 
computed the average cost of operating per bushel for 
different groups of elevators according to the amount of 
grain handled during the years 1912-13, with the following 
results:'^ 

Number of bushels Cost of handling 

handled per bushel (cents) 

50,000—100,000 2.5 

100,000—150,000 1.9 

150,000—200,000 1.5 

200,000—300,000 1.3 

These figures show that the general economic advantage 
which one elevator may have over another, arises from 
the fact that it handles a larger amount of grain than 
do its competitors. It, therefore, remains to compare the 
amount of grain handled by the cooperative elevator com- 
panies with that handled by their competitors. 

The recent investigation of the Federal Trade Com- 
mission establishes beyond all doubt that the cooperative 
companies on the average handle individually a far greater 
amount of grain annually than the individual elevators 
of the commercial line companies or those of the inde- 
pendent dealers. According to the results of this survey, 
the individual elevators of the commercial line companies 
handle on the average 77,250 bushels of grain annually; 



24 Livingston and Seeds, Marketing Grain at Country Points, in Bulletin 
558, p. 34, U. S. Dept. of Agric, 1917. 

25 Opus cit. p. 10. These figures were compiled from elevators handling 
grain exclusively. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 99 

those of the independent dealers, 102,934; the individual 
cooperative companies, 152,792; and the individual eleva- 
tors of the cooperative line companies, 136,825.^^ Hence, the 
individual cooperative companies handle on the average 
almost twice the volume of grain handled by the individual 
elevators of the commercial line companies, and almost 
one-third more than those of the independent dealers. The 
volume of grain handled by the individual elevators of the 
cooperative line elevator companies is, indeed, consider- 
ably less, but also they constitute a very small percentage 
of the total number of cooperative companies. 

From the figures in the preceding paragraph it must, 
however, not be inferred that all of the cooperative com- 
panies, or even the majority of them operate on a closer 
m.argin of expense and therefore secure greater net profits 
than their competitors. It is quite possible, at least 
theoretically, that a minority of the cooperative companies 
may be transacting such a tremendously large volume of 
business as to raise the general average above that tran- 
sacted by their competitors. In like manner it is quite 
possible that the majority of them may be transacting a 
volume of business considerably below the general average 
established for the cooperatives or also for the other types 
of elevator concerns. 

The reasons adduced by the commission in explanation 
of the variations in the volume of business among the 
different types of elevators, leads, however, to the view 
that the general averages cited are representative of the 
comparative volume of grain handled by the cooperatives 
and their competitors at most of the country stations where 
the former are established. The cause of "the generally 
smaller volume of business" ^' handled by the commercial 
line companies, the commission ascribes largely to **the 
more or less hostile attitude of the producer toward the 
line house," and the possible conviction on the part of the 
producer that he will receive a "fairer deal" from a local 



^^Opus cit. p. 117. 

'^'^ Loc. cit. p. 118. Italics are the writer's. 



100 THE COOPERATIVE ELEVATOR MOVEMENT 

concern, whose manager he knows more intimately than 
from the line agent, "of whom he frequently knows little 
and the policy of whose employer he is inclined to dis- 
trust." 2^ On the other hand, the reasons advanced why the 
cooperatives handle a considerably larger volume of grain, 
are the unfriendly attitude of the producer toward the 
commercial line company, his friendly attitude toward the 
cooperative elevators and the cooperative movement in 
general, and the expectation of dividends on stock and 
patronage.^^ These reasons are more or less operative at 
almost every place where a cooperative elevator has been 
organized. The very fact that the cooperative company 
is composed of producers, places it in an advantageous 
position for securing a comparatively large volume of 
business. As long as it pays prices equal to those of its 
competitors, the members will find it preferable to trade 
with their own concerns because of the expectation of divi- 
dends. Many of the non-members can be attracted by the 
provision which many companies have inserted in their by- 
laws whereby they grant dividends to non-members at 
one-half the rate granted to the members themselves. 
Where this inducement is absent the non-member may be 
said to stand at the margin of indifference. The cooper- 
ative company has as much chance to secure his trade as 
any of the competitors. In view of these considerations 
the conclusion does not appear unwarranted that at most 
of the country stations where such companies have been 
established they handle a comparatively much larger 
volume of grain than do their competitors. It is very prob- 
ably this fact which permits the cooperative companies 
to be such important competitive factors in country grain 
buying as they really are. In how far their competitive 
character may have set a level of prices higher than would 
have prevailed otherwise it is impossible to determine. 

From the comparative study of the Federal Trade Com- 
mission in regard to prices actually paid for grain by the 



28 Ibidem. 
2® Ibidem. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 101 

different types of elevators, the commission arrived at the 
following conclusions: 

*'That the differences in the buying margins between 
types are probably not great. 

"Some doubt may be expressed that on the whole the 
cooperatives pay the farmer appreciably more for his grain 
than do the other types. 

'That in so far as the farmers do better by selling to 
the cooperative or farmers* elevator, it is due probably to 
the returns derived by the customers in the form of divi- 
dends on patronage or stock owned rather than to better 
prices paid the farmer at the time the grain is sold." ^^ 

The study in regard to grade, dockage and weight, was 
restricted to the commercial line companies, but the com- 
mission was reasonably assured that a similar study for 
other types of elevators, would show greater profits or less 
losses for their customers if it had been possible to obtain 
the necessary data from representative groups of such 
houses.^^ From this extensive survey, therefore, it is as- 
certained that the cooperatives pay at least equally as high 
prices as their competitors and give their patrons equally 
as great advantage in regard to grade, dockage and weight. 

As to actual profits realized by the cooperative elevator 
companies, recent figures are available from two surveys, 
the one conducted by the University of Minnesota, the 
other by the Federal Trade Commission. According to the 
computations of Black and Robotka, who conducted a sur- 
vey of cooperative grain marketing in Minnesota in 1918, 
227 companies or 94 per cent of a total of 241 reporting, 
made profits during the fiscal year, 1917-18, averaging 
$4,254.^2 Thirteen companies or 5 per cent of the total 
number, had losses averaging $1,236, and one company 
reported that it had neither profit nor loss. The average 
profits of all the companies would, therefore, be $3,941.5' 



80 Opus cit. p. 194. 

31 hoc. cit. pp. 197-206. 

82 Black and Robotka, Opus cit. p. 26. 

83 Ibidem. 



102 THE COOPERATIVE ELEVATOR MOVEMENT 

If this general average of profit be applied to the 4,442 

cooperative elevator companies existing in the North Cen- 
tral States at the beginning of 1921, their total profits 
during the fiscal year 1919-20 equalled $17,505,922. Were 
this total equally divided among the 409,062 members, the 
average profit for each member would have been $35.50. 

The representative character of the Minnesota survey 
as a general criterion of the profits of cooperative elevator 
companies may, however, be questioned. In the first place, 
the number of companies reporting is small in comparison 
with the total num.ber of companies in the North Central 
States at the beginning of 1921. Again, the companies of 
Minnesota handled on the average only 125,571 bushels of 
grain annually, which is 25,000 bushels less than the five 
year average arrived at by the Federal Trade Commission 
in regard to the volume of grain handled in general by 
the cooperative companies. Furthermore, the market was 
so irregular during the year 1917-18, that it was difficult 
to determine the price which would yield a safe margin 
of profit. To this condition Black and Robotka ascribe 
the fact that 61 companies did not have sufficient profits 
to warrant paying dividends. ^^* The figures, therefore, are 
probably conservative when adduced as reflecting the profits 
of cooperative elevator comipanies in general. 

Because of the variations in accounting in vogue among 
the cooperative elevator companies, a statement of thair 
profits and losses does not always afford an accurate index 
of their financial status. While most of the companies of 
Minnesota included both dividends on stock and patronage 
as profits, the number of companies v/hich were figuring 
dividends on stock as expenses was increasing.^^ Hence, 
the total net profits are more accurately reflected in the 
dividends distributed and in the sums accumulated as re- 
serves and undivided surplus. 



5* Opus cit. p 26. 
35 Loc. cit. p. 26. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 103 

The 360 companies ^'^ of Minnesota during the fiscal year, 
1917-18, distributed about $830,000 in dividends, and in ad- 
dition accumulated $700,000 as reserve funds and undi- 
vided surplus. Upon this basis, the 4,442 companies of 
the North Central States during the fiscal year 1919-20, 
distributed $7,773,777 in. dividends and accumulated $8,- 
359,444 as reserve funds and undivided surplus. 

The dividends distributed, are returned to the stock- 
holders as dividends on capital stock, on patronage, or on 
both. Forty-five per cent of the 241 companies in Minne- 
sota, reporting in regard to these items, paid dividends 
on stock only, and twenty-three per cent of them paid divi- 
dends on both stock and patronage. Three companies paid 
patronage dividends only. The accompanying table shows 
the dividend rates on capital stock as reported by 233 
companies. 

Rate of dividend Number of elevators 

(per cent) reporting ^^ 

75 

2 1 

4 2 

6 12 

7 10 

8 36 

9 1 

10 42 

12 2 

15 8 

(per cent) reporting 

20 15 

21 2 

22 7 

25 1 

30 5 

40 , 10 

50 1 

54.... 4 

100 1 



3'^ This was the total number of companies in the State at the time. Not 
all of the companies responded to the various questions sent to them. 
37 Of the 75 companies reporting no dividends, 13 made no protits. 



104 THE COOPERATIVE ELEVATOR MOVEMENT 

From this table it is seen that 132 companies out of 233 
reporting in regard to dividends on stock, paid 8 per cent, 
and more. But it is important to bear in mind that com- 
panies paying less than 8 per cent may be equally as pros- 
perous as those that pay this rate or a higher one. When 
companies pay exceptionally high dividend rates on stock, 
in all probability they are not paying dividends on patron- 
age, and so are not living up to truly cooperative principles. 
Again, companies with small dividend rates may be paying 
higher prices for grain or they may grade it higher, charge 
less dockage, and give better weight. A company, in short, 
may run on a no-profit basis, and still be of as much eco- 
nomic benefit to the producers as are the companies in 
which the rates of dividends are high. 

Another survey dealing with the profits realized by 
the cooperative elevator companies, is that of the Federal 
Trade Commission, whose Report on the Profits of Country 
and Terminal Grain Elevators was made public on June 
13, 1921.^® This Report presents a comparative statement 
of the profits made by the principal types of country ele- 
vators during the crop years 1915-16, 1916-17, 1919-20. 
In the accompanying Tables I and II are charted the results 
of this investigation in regard to the rate of return on the 
investment for the principal types of country elevators dur- 
ing the three years indicated. As very much of the business 
of country elevators is handled on borrowed capital, the 
rate of return on the investment will be considerably higher 
or lower accordingly as borrowed funds are either included 
or excluded from the computations. For this reason it was 
thought best to construct two tables, the one indicating 
the percentage of income to invested capital, borrowed 
funds included, the other presenting the percentage with 
borrowed funds excluded. 



88 The Report is printed as Sen. Doc. No. 40, 67th Cong. 1st sess. This 
is a preliminary report, issued because of the measures dealing with the 
grain trade that were before Congress at the time. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 105 



Table I — Showing percentage of income to invested capital for country grain 
elevators, borrowed funds included}^ 



Type of Elevator 


1915-16 


1916-17 


1919-20 


Independent 

Cooperatives (pat. div.) 


17.85 
31.78 
14.59 
11.65 


24.20 
38 . 97 
27.50 
15.82 


18.93 
26 32 


Cooperatives (no pat. div.) 

Line companies 


21.22 
12.86 







Table II — Showing percentage of income to invested capital for country grain 
elevators, borrowed funds excluded. 



Type of Elevator 


1915-16 


1916-17 


1919-20 


Independent 

Cooperatives (pat. div.) 

Cooperatives (no pat. div.) 

Line companies 


21.69 
49.21 
17.10 
15.57 


29.27 
58.13 
26.29 
20.80 


22.73 
39.03 
26.26 
18.15 



From these tables it is seen that the cooperatives paying 
patronage dividends have each year easily the highest rate 
of return on the investment, whether borrowed funds are 
either included or excluded. The cooperatives not paying 
patronage dividends occupy a much less favorable posi- 
tion. Their rate may be said to be approximately inter- 
mediate between that of the independent dealers and that 
of the commercial line companies. It would be hazardous 
to offer an explanation of the variations of return on the 
basis of the data given in the Report. The explanation 
will no doubt be given in the more detailed report to follow. 
However, there are several advantages connected with the 
cooperative form of organization, which are fundamental 
and which probably account in a large measure for the 



^*** The cooperatives were divided into two classes, those paying patronage 
dividends and those paying dividends only on capital stock. 



106 



THE COOPERATIVE ELEVATOR MOVEMENT 



high rates of return reported by the cooperative companies 
that distribute their earnings on the basis of patronage.^^* 
The Report of the Federal Trade Commission also gives 
figures indicating the total number of companies reporting 
for each type of elevator as also the total amount of 
operating profits realized by the companies of each type. 
From these figures it is possible to arrive at estimates 
which should be fairly accurate averages of the amount of 
profit realized by the individual companies and by the indi- 
vidual mem.bers. To indicate these averages and the 
method of arriving at them is the purpose of Table III. 



Table III — Showing the average operating profit of individual cooperative 
elevator companies and the members thereof ."^^ 



Year 


Type of Com^pany 


Total 

operating 

profit^" 


Num- 
ber of 
com- 
panies 


Average 

profi.t 

per 

com.^' 


Average 
profit 
per 
mem. ^ 


1915-16. 
1916-17. 
1919-20. 


Coop. pay. pat. div 

Coop, not pay. pat. div. . . 

Coop. pay. pat. div 

Coop, not pay. pat. div. . . 

Coop. pay. pat, div 

Coop, not pay, pat. div. . . 


$ 537,511 
281,993 

1,372,702 
1,150,048 

1,300,711 
794,010 


135 
132 

226 
236 

197 
153 


$3,952 
2,136 

6,073 
4,876 

6,602 
5,189 


$35.93 
19.41 

55.20 
44.32 

60.11 

47.17 



AVERAGE $4,804 $43 . 50 

On the basis of the figures presented in this table, it may 
be concluded that the average annual income of a co- 



39a These advantages will be developed in the succeeding chapter. 
*o This represents the amount of operating profit after interest has been 
deducted on borrowed funds. 

41 Average operating profit per company is obtained by dividing total 
operating profit by the number of companies reporting. 

42 Average profit per member is obtained by dividing the total operating 
profit of the individual companies by 110, which we estimated as the 
average number of members composing an individual company. See 
Chapter II, p. 2>6. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 107 

operative elevator company is not far removed from $5000, 
which in turn should net the individual member, taking 
110 as the average number of members composing a com- 
pany, a sum close to $45. Were averages computed ex- 
clusively for the cooperative companies paying patronage 
dividends, they would be considerably higher than those 
arrived at. Similarly exclusive averages for the companies 
not paying patronage dividends, would be considerably 
lower. 

If, therefore, the cooperative elevator companies are 
considered in their competitive aspect, and the additional 
gains taken into account that they can secure for their 
patrons by returning to them dividends on stock and 
patronage, the conclusion seems warranted that cooperative 
marketing is an enterprise in which grain growers may 
engage with economic advantage to themselves. The gains 
thus made possible have, however, special significance for 
the farmer of small means. From a certain viewpoint he is 
proportionally the greatest beneficiary because through 
membership in a cooperative elevator company he can bar- 
gain collectively both in the matter of selling his grain 
and of buying his supplies, and the financial benefits he 
thus secures, are used to supply more fundamental needs 
than those obtained by his more prosperous neighbors. 
But here again it is important to distinguish between those 
companies organized as ordinary stock corporations and 
those organized as true cooperative associations. The com- 
panies in which the profits are distributed on the basis of 
stock-ownership are likely to be of no considerable benefit 
to the farmer of small means because his capital available 
for investment in the enterprise may not be sufidcient to 
make his profits commensurate with the patronage that he 
contributes to the company. The same distinction is of 
importance when cooperative grain marketing is considered 
in relation to the tenant class. Tenants as a rule have no 
capital at their disposal to invest in an elevator company 
merely for the dividends that such investment may bring, 
and hence they will lack adequate incentive to take out 
membership in a company that distributes its profits on 



108 THE COOPERATIVE ELEVATOR MOVEMENT 

the basis of an ordinary corporation. No doubt, frequently 
tenants do not become members of a cooperative elevator 
company because they contemplate moving out of the com- 
munity within a short time/^ but this fact does not vitiate 
the claim just made. 

The economic gains secured as a result of cooperative 
grain marketing have had also the direct effect of increas- 
ing the value of the land in those sections where the co- 
operative elevator companies are located. The value of 
agricultural land, disregarding its location, is determined 
by the price of the products which are grown on it. A 
higher price paid for agricultural products enables the 
owner to collect a higher rental from his land.** The abil- 
ity to collect a higher rental in turn increases the value of 
the land, and this increase is determined by capitalizing the 
annual rental at the current rate of interest.*^ Thus, if 
an acre of wheat yields twelve bushels, and the price in 
that locality is increased three cents per bushel as a re- 
sult of establishing a cooperative elevator company, the 
capital value of that acre of land would be increased by 



*3 B. H. Hibbard, The Tenant of the North and the Marketing of His 
Crop, p. 462, in Report of the Third National Conference on Marketing 
and Farm Credits. The following quotation is taken from the paper read 
by Professor Hibbard at the Conference : "Among the cooperative elevators 
in Iowa, located in districts where the farmers are half tenants, and where 
tenants sell decidedly more than half of the grain shipped, but one-fourth 
of the members of the companies are tenants. Thus three-fourths of the 
shares of the elevator are in the hands of men who own land, while the 
tenants selling more grain than all of these, hold but one-fourth of the 
shares. Not only are the tenants in the hands of their landowning neighbors 
so far as the management of their land is concerned, but where the farming 
population is half tenants, with less than a quarter of them in a marketing 
association it means strength to the line-elevators and all other private un- 
dertakings of the kind, and weakness to the tenants and hence to the whole 
farming population." This statement is confirmatory of the view expressed 
in the preceding paragraph in as far as the cooperative elevator companies 
of Iowa at the time when the survey was made, were for the greater part 
organized as ordinary stock corporations. 

■** This presupposes that he is the owner of land from which he could 
exact rent before the increase of price occurred. Rent is always the differ- 
ential between land which commands a price for its use and that land the 
use of which brings a return just sufficient to cover the expenses of pro- 
duction. 

*° Frank O'Hara, Introduction to Economics, pp. 180-182. 



RESULTS ACHIEVED THROUGH COOPERATIVE MARKETING 109 

six dollars if the current rate of interest were six per 
cent. 

Cooperative grain marketing, apart from economic con- 
siderations, has a social and an educational value. Every 
cooperative elevator company is an important rural social- 
izing agency. Through the medium of the company, the 
farmers of the community learn to know each other, and 
this fact helps appreciably in breaking down that indivi- 
dualism and distrust of one another's motives so char- 
acteristic of the agricultural classes. The economic gains 
made possible through association, teach the members of 
the company that in their other social relations also they 
can accomplish more through collective effort than through 
individual action. Questions of general policy frequently 
find discussion in the meetings of the members, who are 
thus led to take an interest not only in the affairs of their 
community but also in those of the State and Nation. The 
annual picnic, which is held by many companies, offers an 
opportunity of acquaintance, mutual good fellowship, and 
enjoyment. Through the speakers that are generally pro- 
vided for such an occasion, the picnic serves also to im- 
press upon the attendants useful lessons regarding agri- 
culture and rural problems in general. The fund set aside 
by some companies for educational purposes, can be used to 
accomplish the same end. The business features of the 
organization also have their distinctly educational value. 
By virtue of his relations with the company, the farmer 
becomes familiar with new business forms and methods; 
the small savings made possible through collective buying 
and selling, stimulate the practice of thrift. On the other 
hand, membership in a cooperative elevator company makes 
demands upon the farmer's capacity for altruism. The 
motto "each for all and all for each" finds practical applica- 
tion in every cooperative enterprise that succeeds. This, of 
course, does not mean that cooperative grain marketing 
carries no appeal to individual self-interest, but it is a 
recognition of the fact that associated endeavor promotes 
the individual's welfare more effectively than isolated 
action in meeting their common problems. 



110 THE COOPERATIVE ELEVATOR MOVEMENT 

These then are the economic and social advantages which 
members of a cooperative elevator company may reasonably 
expect from their enterprise. But these results can be ob- 
tained only when the company continues in successful 
operation, and success depends upon the prudent adaptation 
of means to the desired end. This leads to a consideration 
of the factors that condition success. Experience indicates 
that these companies in order to serve their purpose and 
continue in successful operation, must pay due regard to 
certain fundamental principles or factors. These form 
the subject matter of the next chapter. 



CHAPTER VI 

FACTORS OF SUCCESS IN COOPERATIVE GRAIN 

MARKETING. 

In closing the preceding chapter the general conclusion 
was drawn that cooperative grain marketing in the North 
Central States has been successful as a general movement. 
This statement, however, does not imply that the farmers 
of any particular locality may form a grain marketing 
association, and be assured that their undertaking will be 
successful. It is important to distinguish between the suc- 
cess of a movement and that of its component parts. Co- 
operative grain marketing has had its success and its fail- 
ures. While the majority of the companies have been able 
to provide a satisfactory market for the community in 
which they were established and to yield financial returns 
to their patrons, some companies have not succeeded in 
doing this but have ended in financial failure. The burden 
then is to detect those factors which make for success and 
those which make for failure rather than to establish the 
inherent feasibility of cooperative grain marketing as an 
economic principle. 

As the success or failure of any enterprise depends upon 
a variety of factors so experience has established that a 
number of fairly well recognized principles must be ob- 
served in the organization and management of cooperative 
elevator companies before their success can be reasonably 
assured. A conviction on the part of the members that 
their company will be able to perform a real service in the 
community ; assurance of a fairly large volume of business ; 
the adoption of the truly cooperative plan of organization ; 
efficient management, with its correlatives, proper book- 
keeping, accounting, and auditing; a loyal membership; 
centralization of effort — ^these are the factors, stated in a 
summary way, that assure success. 

Ill 



112 THE COOPERATIVE ELEVATOR MOVEMENT 

The lack of appreciation of the value of organization on 
the part of American farmers, has become almost proverb- 
ial. A fundamental difficulty seems then to be encountered 
at once, for it will be readily conceded that successful co- 
operative grain mxarketing is impossible without a well cor- 
related and coordinated business organization. A cursory 
review of the early history of the cooperative elevator 
movement would almost lead to the conclusion that only 
after the economic independence of the grain growers is 
threatened, can a successful marketing association be estab- 
lished among them. When a cooperative elevator company 
was organized, the competing dealers soon created dissatis- 
faction in its ranks by bidding higher prices for grain. 
Only by '"penalizing" its members for withdrawing their 
patronage, could their loyalty be retained. Within recent 
years, however, a broader vision regarding the value of 
organization has begun to prevail. The cooperative ele- 
vator companies of the North Central States are today not 
the object of special discrimination as they were during 
the period when railroad companies refused themi sites for 
building and when commission firms refused to accept 
their grain, and yet they are increasing in number at an 
accelerating rate and individually are handling vastly 
greater amounts of grain than do their competitors. Such 
a situation seems to indicate that the grain growers of this 
region are beginning to consider the marketing of grain 
as much a part of their occupation as they do the growing 
of it. 

It is, therefore, scarcely any longer necessary that their 
economic independence be threatened before they will suffi- 
ciently surrender their individualism to associate them- 
selves successfully with their neighbors in a cooperative 
marketing organization. At the same time it is equally 
certain that they must realize that their proposed com- 
pany can perform a real service by providing a more ad- 
vantageous market for their grain than existed before. 
There are so many counter-currents interfering with the 
efficiency of a grain elevator company that an important 
cause affecting the farmers' interests must be the dominant 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 113 



motive for its establishment. In some companies the mem- 
bers are scattered over a wide area. Where this condition 
prevails, there is likely to be the lack of that community 
spirit, the presence of which is the necessary foundation of 
all successful associated endeavor. Again, there will be 
others who feel that after all they can handle their problems 
almost as well individually as through collective effort. 
Some consider marketing scarcely within the province of 
their occupation. Others are suliiciently prosperous as not 
to care seriously for the additional gains they may be able 
to make through membership in an association which 
necessarily interferes with their perfect freedom of action. 
Some are distrustful of entering a business organization 
because of the losses they have suffered in the past through 
so-called "professional promoters," who for their own pri- 
vate interests have lured the farmers into business 
ventures. Local jealousies, dissatisfaction with the officers, 
and especially with the manager on account of the grades 
he assigns to their grain, the dockage he takes, and the 
price he pays for it, are not infrequently the causes under- 
mining the stability of a company. These are conditions, 
one or the other of which almost every company must at 
some time face. Hence it is a necessary prerequisite that 
every company organized, arise spontaneously out of the 
desires of its future members if its success is to be reason- 
ably assured.^ 

The organizing of a cooperative elevator company is a 
business undertaking, and unless this undertaking is 
financially sound it will sooner or later succumb to the 
opposition which it will almost invariably be compelled to 
withstand. In the preceding chapter it was shown that 
the costs of operating an elevator vary little regardless of 
the amount of grain handled, and that the principal eco- 
nomic advantage of the cooperatives is due to the larger 
amounts of grain handled by them than by their com- 



1 Livingston and Seeds, Marketing Grain at Country Points, p. 41 ; Black 
and Robotka, Opus cit. pp. 7, 8; Filley, Cooperation. Extension Bulletin 
No. 31, pp. 28, 29, Agric. Exp. Station of Nebraska; O. B. Jesness, Opus 
cit. p. 6 ; Bassett, Moomaw, and Kerr, Opus cit. p. 190. 



114 THE COOPERATIVE ELEVATOR MOVEMENT 

petitors. Where this advantage disappears it would be 
inadvisable from a financial point of view to organize an 
elevator company at such a country point, provided com- 
petitive prices are being paid for grain. 

In judging, therefore, the advisability' of organizing a 
company in a particular locality, it is highly important to 
estimate the approximate volume of grain generally mar- 
keted at that country station,- and to ascertain what pro- 
portion of this amount will probably be handled by the 
cooperative company.^ It must be remembered that most 
country stations are already well supplied with grain ele- 
vators.- In many places there are more than are needed.^ 
If a company is organized at such a place, and it does not 
succeed in getting a larger share of grain than do its com- 
petitors, the cost of operating will be increased for each ele- 
vator at that particular country station, a cost that must 
ultimately be borne by all the farmers of the community. 
Because of the small amounts of grain handled by each 
elevator in this instance, competition is likely to become 
very keen, verging on the cut-throat type. This condition 
will demand the highest business efficiency at the very out- 
set, and if this efficiency is lacking the probable result will 
be the failure of the company. 

Sinc^ the farmers must in most instances enter a field 
already occupied, the wisdom of buying an elevator of a 



- Livingston and Seeds in their Bulletin advise that definite information 
should be secured for a five-year period to arrive at a conser\'ative esti- 
mate, p. 4L 

3 Black and Robotaka advise in their work on cooperative marketing 
that a company should ordinarily be assured of 100,000 bushels annually 
unless its competitors would handle still less or give unsatisfactory service. 
Opus cit. p. 29. 

* Livingston and Seeds. Opus cit. p. 33 ; Bulletin of U. S. Bureau of 
Labor Statistics, Opus cit. p. 14 ; Report of the Federal Trade Commissicn 
on the Grain Trade, Vol. I. p. 38. The average number of elevators per 
station is 2.38 according to this Report. 

* Li\-ingston and Seeds, Opus cit. p. 14. The following quotation is taken 
from this Bulletin : "In some sections there are more elevators than the 
volume of business will justify, some communities being supplied with 8 or 
10 houses, when 2 or 3 would be adequate." Cf. Bulletin of U. S. Bureau 
of Labor Statistics, Opus cit. p. 14. See also American Cooperative 
Journal Vol. 12 (1917), pp. 437-38, 499-522, 564-65. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 115 

competitor rather than of building one,^^ is apparent, other 
things being equal.^ In all probability competition will be 
less severe, the company will be reasonably certain of a 
larger volume of business, and hence also of larger profits. 
Finally such action may solve the problem of procuring an 
efficient and experienced manager for the company. 

Assuming then that local conditions warrant the forma- 
tion of a cooperative elevator company, according to what 
plan should it be organized? Which of the four types of 
organization promises the best results? Is it the ordinary 
stock corporation, the stock corporation with its limitation 
of shares and voting power, the corporation which besides 
these two characteristics embodies a third, namely, the 
distribution of net earnings according to the amount of 
business transacted with the concern, or is it the co- 
operative non-stock association? The answer to this ques- 
tion will depend largely upon considerations of the results 
a cooperative elevator company should achieve for the com- 
munity in which it is established. 

If the purpose in organizing is the seeking of an invest- 
ment, then the ordinary corporation form is adequate. 
While the corporation form is especially designed for en- 
terprises requiring large amounts of capital, for example, 
the building of a railroad, this does not prevent it from be- 
ing equally applicable to smaller enterprises, such as an 
elevator company. Experience proves that from a financial 
point of view the ordinary corporate form is adequate to 
function as a basis for successfully conducting a grain 
elevator. Thus, when some companies pay dividends of 30 
per cent on the invested stock,^ they are evidently successful 



*aWhen the farmers buy an elevator instead of building one, it is well 
to call in an experienced accountant to appraise the value of the elevator 
and its equipment. 

6 An important consideration is the elevator's equipment of machinery 
for conditioning grain, or the adaptability for its installation. The saving 
made possible in freight by cleaning grain at the country elevator is an 
important item. It costs as much to ship a bushel of screenings to the 
terminal market as it does to ship a bushel of the finest quality grain. 
Screenings can be profitably sold by the elevator or returned to the farmer 
and used for feed. 

7 L. D. Weld, Opus cit. pp. 7, 8 ; Black and Robotka, Opus cit p. 28. 



116 THE COOPERATIVE ELEVATOR MOVEMENT 

financially. But do such high dividends necessarily imply 
large financial returns for all the members? Does not the 
fact that stock yields a dividend of 30 per cent create a 
strong presumption that the capital stock in such a com- 
pany has become concentrated in the hands of a few, and 
that the company exists prim.arily for the benefit of these 
few rather than for the benefit of all the members? The 
concentration of ownership and the consequent centraliza- 
tion of control are indeed the dangers to which the co- 
operative elevator company organized on the ordinary 
corporate plan is constantly subject.* When this concen- 
tration of ownership and control has taken place, the 
members owning little of the capital stock, have no longer 
a special interest in the company, and if a competitor pays 
higher prices for grain, the patronage of these will in all 
probability be lost to the company. 

The primary reason, however, why farmers organize a 
grain elevator company is, or should be, to secure for them- 
selves more advantageous marketing facilities than existed 
before. They are not primiarily seeking an investment. 
Any type of organization that does not secure this purpose 
is ill-adapted to a cooperative elevator company. Any type 
which tends to create a membership interested in the en- 
terprise as an investment rather than as a method of pro- 
viding advantageous marketing facilities, fosters a condi- 
tion undermining the stability of the company. 

As long as the members own capital stock in direct pro- 
portion to the amount of grain they market, the purpose of 
the company can still be secured. But the difficulty of ap- 
portioning stock among all the members in such a manner 
that each one will own this proportionate share and the 
equally great difficulty of maintaining this proportion, 
render the ordinary corporation type of organization a 
poor plan for a cooperative elevator company to adopt. 

To meet these difficulties many of the companies have 



sMehl and Jesness. Opus cit. p. 3; Black and Robotka, Opus cit. p. 30; 
Cf . Jesness, Opus cit. 10 ; Bassett, Moomaw, Kerr, Opus cit. 191 ; Cumber- 
land, Cooperative Marketing, p. 11. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 117 

inserted clauses in their by-laws, which allow to each 
member only one vote and limit the number of shares each 
member may own. These provisions make the company a 
compromise organization between the ordinary corporation 
and the cooperative stock company. It differs from the 
latter only in that dividends are distributed in proportion 
to the amount of stock owned and not on the basis of busi- 
ness transacted with the concern. Do these provisions 
achieve adequately the purpose for which they were de- 
signed? By allowing to each member equal voting power, 
the danger of centralization of control is averted, and each 
member is given the incentive to have a personal, vital in- 
terest in the enterprise. 

The second provision, hov/ever, does not achieve its pur- 
pose so well as does the first. Even though there is a limita- 
tion set upon the amount of stock each member may own, 
it does not necessarily follow that each member will own 
stock in proportion to the amount of business he transacts 
with the concern, and this is an essential requisite for a 
company of this type to be assured of permanent success. 
Every farmer who contributes business to the enterprise 
in excess of the amount of stock owned by him, to that ex- 
tent will feel at liberty to desert the company if outside 
firms offer better prices for grain. But there are other 
difficulties which in time may undermine the stability of 
such a company. Since dividends are paid on stock, there 
will be a tendency for persons to retain membership in the 
association if it is prosperous, even though they have re- 
tired from farming and have moved out of the neighbor- 
hood. Were all the companies based on this compromise 
form of organization there would no doubt be a consider- 
able amount of "absentee ownership" in view of the gen- 
eral trend toward the cities and in view of the extent of 
farm tenantry, which always implies a shifting of the rural 
population. This shifting is in itself an obstacle which 
every farmers* association must meet, but it is better for 
the association to have a changing local membership with 
like interests than a stable membership scattered over a 
wide area, and with varying interests. 



118 THE COOPERATIVE ELEVATOR MOVEMENT 

These difficulties might be eliminated through clauses in 
the by-laws regulating conditions of membership, although 
their enforcement might at times entail litigation. Cer- 
tainly it would be desirable if a type of organization were 
at hand which would tend to eliminate these difficulties 
automatically. Does the cooperative stock corporation 
offer a solution? What are its advantages as a type of 
organization for a grain elevator company? 

Like the type of organization just described, the co- 
operative stock corporation embodies the features of limita- 
tion of voting power and of stock ownership. It differs 
from the former in this that after the current rate of in- 
terest has been paid on the invested capital, all further 
profits or earnings are pro-rated to the members in propor- 
tion to the amount of business each one has transacted 
with the association. Through the limitation of voting 
power, democratic control of the association is assured. 
Since each one has the same degree of control, the mem- 
bers owning a small amount of stock will feel a personal, 
vital interest in the enterprise ; and no one will be tempted 
to buy up a large amount of stock as a means of securing 
control of the policies of the company.^ By limiting the 
number of shares each member may own, opportunity is 
offered to all the farmers of the community to own at least 
one share of stock in the enterprise. This limitation se- 
cures also a further safeguard in the interests of demo- 
cratic control.^^ The provision whereby only the current 
or legal rate of interest is paid on the invested capital, pre- 
vents persons from buying or retaining stock in the com- 
pany, primarily for the profit that such stock may yield.^^ 
The final provision, namely, the distribution of profits ac- 
cording to the amount of business transacted with the asso- 
ciation, offers a powerful incentive to loyalty on the part 
of all the members. Each member of a company organized 
on this plan, will strive to market as much grain with the 
company as possible since his profits stand in direct pro- 



» Mehl and Jesness, Opus cit. p. 3 ; Black and Robotka, Opus cit. p. 30 ; 
Cf. Jesness, Opus cit. p. 10; Bassett, Moomaw, and Kerr, Opus cit. p. 191. 
^^ Ibidem. 
11 Ibidem. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 119 

portion to the volume of business he transacts with it. The 
importance of this provision as a factor of success in con- 
ducting an elevator company cannot be easily overesti- 
mated. Any plan of organization which does not secure the 
results intended by this provision, is deficient. Hence the 
cooperative capital stock association seems best adapted to 
meet the needs of the situation. ^^ 

The cooperative non-stock association embodies the same 
incentive to loyalty on the part of the members, but it has 
not found favor because in the opinion of the grain growers 
it does not provide a satisfactory method of procuring the 
large amount of capital necessary to finance a company 
adequately. Furthermore, some of the state incorpora- 
tion laws do not make specific provision for this type of 
association. 

In order, however, that the cooperative stock association 
achieve its purpose, it is important that the rate of dividend 
on capital stock be not excessive. If the rate is higher than 
eight per cent, the company tends to become an enterprise 
conducted primarily for profit and in the interest of the 
large stockholder. Similarly, a limitation should be set 
upon the amount of capital stock each person may own in 
the concern, but the point of limitation must be governed 
largely by local conditions, such as the number of prospec- 
tive members, their comparative financial status in rela- 
tion to the capitalization of the company, and their willing- 
ness to finance the enterprise. 

As has been seen, a difference of opinion exists among 
grain growers as to what should constitute the proper basis 
of distributing the patronage dividend, some maintaining 
that it should be based upon the value of the grain de- 
livered by each patron and not upon the quantity. An 
examination of the method of conducting the business of 
an elevator will lead to the conclusion that the patronage 
dividend should be based upon the quantity of the grain 
delivered and not upon the price received for it. It is the 
practice of every elevator to allow a certain margin of 
profit on each bushel of grain handled. The total amount 



12 Cf . Ibidem. 



120 THE COOPERATIVE ELEVATOR MOVEMENT 

of profit will, therefore, be in direct proportion to the 
amount of grain handled, regardless of whether the grain 
has been sold at a high or a low price. As is well stated 
in one of the Bulletins of the U. S. Department of Agricul- 
ture: '*If the value of the grain determined the profit, a 
value bafiis could be established for determining patronage 
dividends ; but the fact that two persons hauling the same 
kind of grain at different times of the year under condi- 
tions of price fluctuation would receive varying amounts of 
money for the same number of bushels of the same com- 
modity shows that it is not the proper basis for patronage 
dividend distribution." ^^ 

The adoption of a plan of organization, which determines 
the method of distributing profits, specifies only a few of 
the many social relations arising out of the formation of 
a company. To outline and define these various relations, 
every company should draft a set of by-laws.^^ Without 
by-laws determining succinctly and comprehensively the 
rights and duties of the members toward each other and 
toward the company as a collective body, misunderstand- 
ing and dissatisfaction are sure to follow. These by-laws, 
therefore, should state exactly what is proposed to be 
done and how it is to be done. They should present in 
detail the working plan of the organization. The by=laws 
of an association have been well compared to the specifica- 
tions which guide the contractor in constructing a build- 
ing. Ji^st as from the specifications the contractor is en- 
abled to build the structure as desired, so from a set of 
by-laws the members should be able to ascertain precisely 
how their company will be organized in conducting its 
business.^** 

Upon its formation the company should be incorporated 
under the incorporation law of the state in which the com- 
pany operates. Incorporation gives the company a distinct 
legal status, enabling it to act as a corporate entity. It also 



13 John R. Humphrey and W. H. Kerr, Patronage Dividends in Co- 
operath'e Grain Companies, p. 6, in Bulletin 371. 

1* See sample set of by-laws at end of treatise, Appendix B. 

1^ Bassett and Jesness, Cooperative Organisation By-Laws, p. 1, Bulletin 
541, U. S. Dept. of Agric. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 121 

definitely limits the financial liability of its members. In 
some states, the un-incorporated association has the legal 
status of a partnership/^ and in a partnership the liability 
of each member is unrestricted. Again, in other states 
the un-incorporated association is considered as an agent 
for its members, and as such the legal status of its mem- 
bers is that of principals.^^ 

Though its opportunities be very great and though the 
plan devised for conducting its business be very good, if 
the company is not efficiently managed, nothing will save 
it from financial failure. There is no other factor upon 
which its success so much depends as upon efficient man- 
agement. And while the management rests fundamentally 
with the board of directors, the efficiency of this manage- 
ment will depend in a large measure upon the one whom the 
board of directors chooses as the manager of the elevator 
and upon the limitations it sets to his authority and re- 
sponsibility.^^ 

From the nature and extent of the manager's work issue 
the causes which make his position so difficult and so 
pivotal in the success of the enterprise. His work is more 
intricate and requires greater insight than that of the 
manager of a line elevator company. The latter generally 
does not sell the grain that he buys; he merely forwards 
the information of the amount bought, to the central office, 
which then attends to the matter of selling. The manager 
of the cooperative company must not only buy grain 
judiciously but he must also sell it advantageously. This 
requires that he possess a thorough knowledge of grain 
marketing conditions so as to determine when, where, and 
how to sell. Besides grain, he must buy and sell a variety 
of side-lines; and of each transaction he must keep an ac- 
curate account in his books. 

Keeping proper accounts of all business transactions of 



i« Opus cit. p. 4. 

^ "^ Ibidem. 

i« The mutual limitation of authority between the board of directors 
and the manager of the elevator demands careful adjustment. See their 
limitations as drawn in the sample set of by-laws at end of treatise. Ap- 
pendix B, Art. II and III. 



122 THE COOPERATIVE ELEVATOR MOVEMENT 

the company constitutes a necessary and important feature 
of the manager's work. Accurate accounting promotes 
economy in conducting the enterprise, creates confidence in 
the membership, and places the company in a better posi- 
tion to secure financial aid.^^ That many of the managers 
of the cooperative companies do not keep proper accounts 
has long been recognized and was disclosed again in the 
recent investigation of country grain marketing by the 
Federal Trade Commission.-^ The need for uniform and 
efficient accounting in these companies has induced the 
Office of Markets and Rural Organization of the U. S. 
Department of Agriculture to perfect a system of accounts 
for them.2^ This system is being introduced in many of 
the companies." 

The manager more than anyone else, is the representative 
of the company, both to its individual members and to the 
other people of the community. Through his general tact 
and prudence when associating with the merchants of the 
town, he can correct false impressions that may exist re- 
garding the company. For it must be remembered that 
town merchants are not infrequently opposed to a coopera- 
tive elevator company because through the large variety of 
side-lines it handles, it encroaches upon what they consider 
their trade ; and no doubt they vaguely feel the possibility of 
farmers organizing a cooperative store if their elevator 
company proves a success. In dealing with non-members 
who come to the cooperative elevator to sell their grain or 
purchase supplies, the manager through that same tact and 
prudence may readily gain for the company permanent 
customers and probably future members. But primarily 
the manager is the representative of the company to its 
individual members. Naturally there will be divergent 
views at times among them as to the policies of buying 
grain and selling supplies that the manager is pursuing. 



^9 W. H. Kerr, Cooperative Organisation Business Methods, p. 2, in 
Bulletin 178, U. S. Dept. of Agric. 

"^^ Report on the Grain Trade, Vol. I, p. 22. 

21 J R Humphrey and W. H. Kerr, A System of Accounts for Co- 
operative Elevators. Bulletin 236, 1915, U. S. Dept. of Agric. 

22 Black and Robotka, Opus cit. p. 13 ; Erdman, Opus cit. p. 152. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 123 

There will be suspicion among them now and then as to the 
grade assigned to their grain, the dockage taken, the 
weight given, and as to the price paid for it. Under these 
circumstances, it requires on the part of the manager not 
only intelligence of a high order but patience as well. 

Honesty in the manager is even more requisite than busi- 
ness knowledge and patience. Failures have resulted be- 
cause managers speculated in grain through buying 
"options" or dealing in "futures," or through outrightly 
defrauding the company. As a measure to protect the 
company against such practice, an article should be in- 
serted in the by-laws, prohibiting the manager's specula- 
tion in grain. For the same reason, the books of the man- 
ager should be audited at stated intervals, and he himself 
should be required to give a bond as a guarantee of the 
faithful performance of his duties. 

Closely allied to efficient management, in fact, an integral 
part of it, is the auditing of the manager's accounts. A 
careful audit will disclose fraud, detect errors and omis- 
sions as also the defects of the business methods of the 
company. It promotes a business reputation for the com- 
pany, creates confidence in the membership and protects 
the manager himself from unwarranted criticism. These 
advantages make it eminently worth while for every com- 
pany to have its accounts audited several times each year. 
Nor should these audits be merely internal, namely, those 
conducted by the board of directors or by a committee 
selected from among its members. It is advisable that they 
should conduct such an audit every three or four months; 
but at least once a year an expert public accountant should 
be called in to make a thorough examination of all the 
books of the company.^^ 

Nothing is more emphasized in the literature on co- 
operative marketing than the necessity of an efficient man- 
ager. Thus C. F. Taeusch in his survey of cooperative 
marketing in Ohio, says: "The investigator has come 
across organizations violating every theoretical principle 
of successful cooperation, but preeminently successful be- 



23 W. H. Kerr, Cooperative Organisation Business Methods, p. 18. 



124 THE COOPERATIVE ELEVATOR MOVEMENT 

cause of the efforts of an efficient manager. On the other 
hand, cooperative concerns that would register one hun- 
dred per cent in theory are barely existing, because of the 
fact that a poor manager is in charge." ^^ Similarly Pro- 
fessor Filley of the University of Nebraska, in his survey of 
cooperation in that State, says : "The most important task 
of the directors is the selection of a manager, for upon 
him devolves to a large extent the success of the company ; 
if they select a competent man, the rest of their work is 
easy." " He then quotes J. M. Shorthill, who is one of the 
foremost leaders in the cooperative elevator movement. 
After stating that the manager is the most important single 
factor of success in an elevator company, Mr. Shorthill 
enumerates the manager's necessary qualifications: "In 
choosing a manager, the first qualification to consider is 
honesty, the second industry, the third natural business 
ability, and the fourth business education. All are im- 
portant, but they are named in the proper order." ^^ 

The opinions here given reflect a common consensus re- 
garding the importance of efficient management. Since 
efficient management is such an important factor, it is evi- 
dent that farmers must be willing to pay a salary sufficient 
to secure and retain an efficient manager. But farmers 
have frequently not realized this necessity. Professor Weld 
found that in Minnesota the salaries of managers in those 
companies that lost money, were on the average ten dollars 
less per month than the salaries of managers in companies 
that returned profits.^" Farmers cannot expect to secure 
managers of high ability at less cost than can private con- 
cerns since both have to bid in the open market. 

There is nothing automatic about a cooperative elevator 
company. It cannot possibly become a factor in reducing 
the costs of country grain marketing, and thereby increase 
the income of the grain growers, without their own co- 



2* Rural Cooperation and Cooperative Marketing in Ohio, in Circular 
No. 141, p. 36, Ohio Agric. Exp. Station. 

-'^Cooperation, in Extension Bulletin No, 31, p. 26, Neb. Agric. Exp. 
Station. 

26 Ibidem. 

2" Opus cit. p. 9. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 125 

operation. Hence, to say that loyalty of the members is a 
necessary factor of success is but citing a truism. The 
task, therefore, is rather to detect the causes from which a 
lack of loyalty proceeds and to suggest methods of action by 
which loyalty may be promoted, than to establish the 
necessity of loyalty itself.. 

The principal causes from which disloyalty proceed, have 
been mentioned at the beginning of this chapter. To coun- 
teract these, every company can take certain measures. 
The first one naturally to suggest itself is that of enforcing 
loyalty through a penalty clause, or some other coercive 
measure. There is no doubt that the penalty clause played 
an important role in the early days of the cooperative ele- 
vator movement and that it saved many companies from 
failure. At present it is very doubtful whether its use 
would be advisable. The questionable legality of the clause, 
in the first place, prevents it from being an effective 
measure. No company can institute proceedings against a 
member and be assured that its cause will be sustained in 
court, if the penalty clause is the basis of complaint. Nor 
can a company employing the penalty clause, hope to enjoy 
the sympathy of the public. Any clause whicli apparently 
interferes with the freedom of enterprise, will be in dis- 
favor with competing dealers and with the community at 
large, and it is likely to be in disfavor with the members 
themselves. Used as a coercive measure the penalty clause 
may serve only to antagonize the members. Hence, part 
from its questionable legality, it may defeat its own pur- 
pose. 

There are, however, other measures available which may 
contribute toward retaining and promoting the loyalty of 
the members toward their company. In the first place, it 
should be remembered that the loyalty of the members is 
in most instances assured if this is the only condition want- 
ing to success. It has indeed been well said that a co- 
operative association to be successful, must have loyal 
members, but it is equally true that the members will be 
loyal if their company is successful. In other words, the 
success of the company depends upon the proper correlation 



126 THE COOPERATIVE ELEVATOR MOVEMENT 

and coordination of all its parts. Hence all the factors 
which have thus far been considered are factors contribut- 
ing toward loyalty. If the management is efficient and if 
the company is organized on the plan of distributing profits 
on patronage, the greatest incentives to loyalty are offered. 
But every company can protect itself still further. The 
by-laws should state clearly the obligations of the mem- 
bers so that they will know what the company has a right 
to expect from them. The conditions of membership can 
also be so fixed as practically to eliminate undesirable mem- 
bers. In a special crisis, a meeting might be called at which 
the president or his representative could explain in detail 
the affairs of the company and appeal to the members to 
support their own organization for the sake of insuring 
their own interests.^^ It should likewise be the policy of 
the board of directors to induce the stockholders to sub- 
scribe to a publication representative of the movement, 
from which they might learn the successes of other com- 
panies and how these successes were often won in the face 
of opposition. 

These measures should in most instances be adequate to 
retain a membership sufficiently loyal to insure the suc- 
cess of the company. While loyalty is surely necessary, it 
should also be remembered that a certain amount of dis- 
loyalty does not at once destroy a cooperative elevator 
company. In fact, disloyalty or rather dissatisfaction on 
the part of one or the other member may at times be well 
founded, and thus may stimulate the board of directors 
and the manager to serve the company more efficiently. 
Hence, instead of relying on coercive measures which prob- 
ably cannot be enforced without recourse to litigation 
and which at best cannot keep a company from failure if 
the confidence of the members has been lost, it seems best 
to rely on voluntary agreements, persuasion and education, 
to retain the loyalty of the members. 

Attention should, however, here be called to a recently 
devised substitute for the penalty clause as a means of 
securing loyalty. This substitute takes the form of a spe- 



28 See Mehl and Jesness, Opus cit. p. 29. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 127 

cial contract between the company and the individual mem- 
bers. The company agrees to provide certain advantages 
for its members, such as the maintaining of an elevator 
and furnishing market news, etc., and the member in turn 
agrees to pay to the company for these advantages a speci- 
fied amount of money for each bushel of grain that he 
sells or markets either directly or indirectly to or through 
the company or any other dealer during the time of the 
contract. But it is further stipulated that for the grain 
the member sells or markets to or through his own com- 
pany the amount of money he agrees to pay (one cent) 
per bushel, shall not be in addition to, but a part of, the 
whole charge or charges that may be established by the 
company for the services that it performs for its mem- 
bers.^^ This contract differs from the penalty clause in 
two aspects. It applies to all grain that the members mar- 
ket, and not only to that which they sell at other grain 
dealers. Furthermore, the company in enforcing the pro- 
visions of the contract, can rest its claim on service per- 
formed. As such, it is believed that this contract will 
withstand legal objections much more successfully than 
would the penalty clause, or the other coercive measure 
whereby the members agree to pay to the company cer- 
tain sums as liquidated damages which the company may 
have sustained because of their, selling or marketing grain 
at other dealers. ^^ 

The same reasons prompting individual farmers of a 
community to organize a local company to provide a more 
advantageous market for their grain, should prompt the 
individual companies to unite into state associations, and 
these to federate into a national association. Through such 
centralization of effort, new companies can be organized 
in the most efficient way by giving them the advantage 
of past experience; the less efficient companies can be 
helped to reorganize on a more efficient basis ; all the com- 
panies can be assisted in various ways; the general stabil- 
ity of the cooperative elevator movement can thus be pro- 



29 For form of such contract see Mehl and Jesness, Opus cit. p. 38. 

30 Opus cit. p. 30. 



128 THE COOPERATIVE ELEVATOR MOVEMENT 

moted and its future development directed into the right 
channels. Problems dealing with the distribution of cars, 
properly equipped cars, collection of damage claims, equit- 
able transportation rates, legislation govering transporta- 
tion and terminal marketing facilities — these are problemis 
requiring concentrated effort and talent that can be pro- 
vided only through organization as exemplified in the Farm- 
ers State and National Grain Dealers Associations. The 
advantageous bonding, insurance, and auditing rates avail- 
able to the cooperative elevator companies through the 
services of the state associations, should be sufficient finan- 
cial inducement to take out membership in these bodies. 
The results achieved by the state associations merit for 
them the support of the local companies, and through them 
the support of the individual members. The future suc- 
cess of the movement is in a large measure bound up with 
the proper coordination of eflforts of the individual com- 
panies with the efforts and policies of the Farmers State 
and National Grain Dealers Associations. 

The question might also be asked whether the central- 
ization of efforts as exemplified in the County Unit Plan -^ 
is a more advantageous method of conducting country co- 
operative grain marketing than the method of conducting 
it on the basis of the single unit type. The County Unit 
Plan makes possible economies, some of which cannot be 
attained when local companies operate as complete business 
units. Under the County Unit Plan, the task of the local 
managers is made considerably easier. Some of their func- 
tions are taken over by the manager of the central or 
county organization. This is an item of importance in 
view of the fact that the managers of the local companies 
operating as complete business units, must be men of high 
competence and character, and therefore, not so easily se- 
cured. The centralized accounting, which accompanies the 
County Unit Plan, is an advantage of the same order. It 
enables at times the local managers to perform the work 
at the elevator without the aid of an assistant bookkeeper. 
The manager of the county organization, being by supposi- 



See Chapter III, p. S6. 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 129 

tion a man of more highly specialized skill than the man- 
agers of the companies operating as individual units, can, 
therefore, also be expected to make better bargains in the 
selling of grain, the purchasing of supplies, and the pro- 
curing of cars for shipment. The very fact that he can 
buy and sell in larger quantities than the local managers, 
gives him superior bargaining power. It may happen that 
the local companies desire daily telegraphic reports of 
market conditions. Under the County Unit Plan it is neces- 
sary to obtain only one report for all the companies, the 
general manager forwarding the information to the locals. 
In this connection, another advantage is claimed. The 
managers all receiving the same information and consider- 
ing their companies as part of the county organization, 
are all very likely to pay the same price for grain, thus 
avoiding competition among themselves, or buying on too 
close margins.^2 Lastly, it is claimed for the County Unit 
Plan that it permits a reduction in the number of boards of 
directors for the local companies, and the creation of an 
exceptionally efficient board for the central or county or- 
ganization. 

The advantages here adduced in favor of the County 
Unit Plan, do not seem to have the value which is some- 
times given them. Thus Mr. W. M. Ramsey, writing in the 
American Cooperative Journal, stresses prominently the 
advantage to be derived from reducing the number of 
boards of directors. He is describing the situation in 
Mitchell County, Kansas, where there were twelve cooper- 
ative associations organized according to the County Unit 
Plan. Instead of twelve they have only one board of di- 
rectors; instead of 108, they have only nine directors. On 
the supposition that each association would have its own 
board of directors, he says: "If they meet only five times 
a year at three dollars per day, the cost of directors would 
be $1,620 annually against ?135, the cost of a single board 
an economy of $1,485." ^^ 

Despite this alleged economy, it is highly doubtful 



^'^ American Cooperative Journal, Vol. 12, p. 377 (Jan., 1917), 
33 Ibidem. 



130 THE COOPERATIVE ELEVATOR MOVEMENT 

whether it would not be to the better interests of the 
individual companies if each of them had its own board of 
directors. Even though the board of directors of the cen- 
tral or county organization is more efficient than would 
be any of the local boards, it does not follow that they can 
handle all the business of all the companies thus associated, 
more efficiently than it would be handled were the business 
of each company under the jurisdiction of a separate board 
of directors. Nor may the conditions as then existing in 
Mitchell County be taken as representative. This would 
presuppose that a board of directors, specially chosen on 
account of their executive abilities, would be willing at 
the same price to perform a service, requiring much closer 
and more detailed attention than would be exacted in con- 
ducting the business of an individual local company. Fur- 
thermore, it would presuppose that each company needs 
nine directors. It is doubtful whether there are compara- 
tively many cooperative elevator companies having that 
number. The most usual number of directors seems to be 
seven. And finally local companies generally experience 
no difficulty in securing directors who are v/illing to per- 
form the service without pecuniary compensation. The 
very fact that the community places confidence in their 
character and ability is to them a sufficient inducement and 
reward. 

In regard to daily telegraphic market reports, it is read- 
ily seen that the local companies of a county can adopt 
that self-same plan and still not operate on the county 
unit basis in their other business activities. Whether the 
elimination of competition, claimed as an advantage in this 
connection, is desirable, may be very much questioned. 
It need only be said that if the local companies of a 
county, through elimination of competition among them- 
selves, would all be paying the same price for grain, but 
a lower one than that paid by the commercial line com- 
panies, the independent, and other dealers, they would 
soon find their patronage falling off at a rapid rate. If a 
competitor pays higher prices for grain than the coopera- 
tive company, even the members will be led to patronize 



FACTORS OF SUCCESS IN COOPERATIVE MARKETING 131 

the former, for present higher prices carry a greater ap- 
peal than does the prospect of future dividends. 

The County Unit Plan is at a distinct disadvantage in 
as far as it necessarily withdraws some authority from 
the affiliated locals. This phase has been well presented 
by Mr. Mehl, "Favoring the local single-unit form of co- 
operative elevators is a degree of community pride which 
usually centers around these organizations, quite inde- 
pendent of the services rendered. Local government car- 
ries a special appeal to the American citizen. This to some 
extent must be lessened, if not entirely lost, where control 
is vested in a body of directors and a management distantly 
situated. In many sections there is a prejudice against 
centralized authority which is not easily overcome." ^* 

These then are the factors which condition success in 
local cooperative grain marketing. That any one of them is 
absolutely essential to success, it would be difficult to main- 
tain, but the absence of anyone of them is an element of 
weakness and unless counteracted by the other factors 
mentioned will hasten the time of the company's failure. 



3* Cooperative Grain Marketing, p. 34. 



CHAPTER VII 

SUMMARY AND CONCLUSION 

The movement discussed in the preceding pages had its 
inception shortly after the Civil War, through the activ- 
ities of the National Grange, a fraternal, social, and busi- 
ness organization, designed to further the rural reconstruc- 
tion necessary upon the conclusion of that great conflict. 
When this organization suffered a temporary collapse and 
v^hen other associations, founded to take its place, lost their 
immediate industrial character by seeking to obtain their 
ends through political action, only a few of the rural co- 
operative business enterprises survived. Lacking initiative 
and leadership, and chiefly concerned with securing lower 
transportation rates, the farmers of the North Central 
States during the decade of the eighties gave little con- 
sideration to the founding of such joint enterprises, as co- 
operative elevator companies. But gradually the suspicion 
gained ground that all was not well with the manner in 
which the price was set for grain at country stations. 
When the decade of the nineties came to a close, the con- 
viction had become widespread that the price was being 
manipulated to suit the whims of the established grain 
dealers. As a form of protest and as a measure of relief, 
the farmers established their own marketing facilities by 
organizing marketing associations, owned and controlled 
by themselves. 

They found the securing of relief through these organ- 
izations to be a much more difl^cult task, however, than en- 
tertaining the conviction of being unfairly treated. Better 
equipped by previous business experience, skilled in the 
art of drawing patronage to themselves, and acting in con- 
sort, the established grain dealers readily brought many 
of these early cooperative elevator companies to an un- 
timely end and set a warning thereby to other commu- 
nities contemplating the formation of similar enterprises. 

133 



134 THE COOPERATIVE ELEVATOR MOVEMENT 

In the face of these difficulties, the grain growers soon 
realized that only by supporting their own ventures, could 
they hope to achieve success. The ^'penalty clause," by re- 
minding them of this necessity, served a useful purpose and 
played an important role in the further development of the 
movement. On the other hand, the continued opposition of 
the established grain dealers rendered more firm their con- 
viction of unfair prices and the determination of overcom- 
ing this evil situation through their own associations. 

From the "enemy" useful things could also be learned. 
Even as the grain dealers were exercising their sway over 
country grain marketing in a large measure through their 
state grain dealers' associations, so the grain growers con- 
cluded that through similar associations they could vastly 
strengthen the existing cooperative companies and provide 
the means whereby new ones could be formed. In response 
to this conviction they organized the farmers' state grain 
dealers' associations. The wisdom of such a step has been 
amply proved; the results expected have been largely 
realized. Better business methods have been introduced 
into the companies as a result, and communities desirous 
of organizing similar undertakings have been given the 
advantage of past experience. In federating these state 
associations into a national association, the grain growers 
were again but following the example of the established 
grain dealers in utilizing to the fullest advantage available 
collective effort. 

The cooperative elevator movement has enjoyed a steady 
growth since 1905. Many of the companies formed since 
that time have ceased to be, but there has been a con- 
siderable net increase from year to year so that at present 
the cooperatives control almost 20 per cent of the elevator 
facilities and handle from 35 to 40 per cent of the total 
volume of grain shipped from country points within the 
region of the North Central States. 

The causes of this growth are to be sought in the mental 
attitude of the grain growers. Suspicion and conviction 
persist among very many of them that the local middle- 
man handling grain, exacts too large a margin of profit 



SUMMARY AND CONCLUSION 135 

for the services he perforins. Others feel that there are 
too many local middlemen for the volume of grain to be 
handled, a condition that unnecessarily increases the cost 
of handling. They see a solution only in the concentration 
of patronage, and this concentration they judge to be most 
easily effected through their own organizations. Then too, 
an increasing number of grain growers have been led to 
the view that the marketing of their product is as much a 
part of their occupation as the growing of it, in the same 
way as the manufacturer considers the marketing of the 
things he produces a necessary phase and function of his 
business. These attitudes, fostered in a large measure by 
the agricultural press and by the encouragement of the 
rural business organizations, are the fundamental and con- 
stant factors inducing the formation of new cooperative 
elevator companies, and thereby contributing to the general 
growth of the movement. 

Although the primary aim of these companies has every- 
where been the same, namely, the securing for their mem- 
bers or patrons larger net returns for their grain, the 
structure of them has by no means been uniform. In gen- 
eral the form of organization adopted has varied in pro- 
portion to the ease of incorporating under the laws of the 
various states. When the cooperative elevator movement 
first took on prominence, the only laws under which the 
individual companies could advantageously incorporate, 
were those authorizing ordinary capital stock corporations. 
But gradually the legislatures of the North Central States 
enacted laws authorizing true cooperative associations. 
Since this form of organization harmonizes best with the 
aim of cooperative elevator companies, almost all of them 
within recent years have adopted this form. Many of the 
companies begun under the ordinary corporation laws, have 
reorganized in order to take advantage of the truly co- 
operative type. In this way the cooperative elevator move- 
ment has linked itself not only in aim but also in structure 
with the general cooperative movement initiated by the 
Rochdale Pioneers of England, in 1844. The form of 
organization adopted by a local company determines, how- 



136 THE COOPERATIVE ELEVATOR MOVEMENT 

ever, only a few of the many business relations among its 
members. It is the function of the by-laws to determine 
these relations. Their nature and scope are always ad- 
justed to meet local conditions and legislative requirements. 

Viewing the results achieved by the cooperative elevator 
companies, we are led to the view that cooperative grain 
marketing is a form of enterprise from which grain grow- 
ers may derive large economic and social gains. The co- 
operatives have been most important factors in maintaining 
competitive conditions in country grain buying. In price, 
margin, dockage, and weight, they have been quite as liberal 
as their competitors. They have secured larger net profits 
than their com.petitors if the comparative and extensive 
survey of the Federal Trade Commission may be taken as 
representative of conditions genersiWy. 

Apart from strictly financial considerations, the co- 
operative elevator companies have an educational and a 
social value which may not be overlooked. They encourage 
initiative, thrift, and the habit of saving; they acquaint 
the farmer with new business m^ethods ; develop his interest 
in the affairs of the community and the State; and teach 
him in a practical way the superior efficiency of social or 
collective as opposed to individual effort. 

If, therefore, they have been the means of securing worth 
while economic and social gains for their patrons, why 
has not the growth of the movement been even greater? 
Why has not the rate of increase been even higher? The 
answer to these questions, like the explanation of the 
movement's growth itself, must be sought in the mental 
attitude of the grain growers. Just as there are many, con- 
vinced that unfair practices exist in countrj^ grain buying 
and that cooperative marketing offers the solution to the 
difficulty, so there are others, who, if they think that unfair 
practices do exist, do not look upon cooperative marketing 
as the method through which adequate relief can be found. 
Perhaps they consider the elimination of such evils to be a 
function of the State. There are others who look upon 
themselves as individually quite capable of securing the 
most advantageous bargains. At any rate they view indi- 



SUMMARY AND CONCLUSION 137 

vidual effort as preferable to collective action, v/hicli neces- 
sarily circumscribes their freedom and compels them to 
associate themselves with others whose motives they are 
likely to distrust. 

The same classes of persons have prevented most of the 
local companies from securing as members all of the grain 
growers of the community in question. But here another 
class should be added, namely, those who prefer to par- 
ticipate in the advantages of cooperative marketing with- 
out assuming the attendant obligations. Some of the ad- 
vantages accruing to the member of a cooperative elevator 
company, necessarily redound also to the advantage of the 
other grain growers of the community. In so far as the 
establishing of a cooperative elevator company may result 
in bringing about competitive conditions at that particular 
country station, all of the growers tributary to that station 
are equal beneficiaries. If a competitor pays a higher 
price for grain than does the local company, the non-mem^- 
ber feels free to give his patronage to the concern offering 
higher prices. If the situation is reversed, he feels equally 
free to reverse the direction of his patronage. If a period 
of financial embarrassment comes over the company, he 
has no fears of suffering loss on invested capital. Hence, 
granting the existence of a local company, the non-mem- 
bers are at times in a more advantageous position than the 
members themselves, although if there were no such com- 
pany all the farmers of the community might suffer a loss 
through lower prices. 

In as far then as the local company may have been a 
source of personal advantage to the non-member, equity 
would seem to demand that in recompense he contribute 
toward its support. But considerations of this sort lead 
into the realms of the ideal. A cooperative elevator com- 
pany, like every other business venture, must win its way 
by proving conclusively its superiority over other concerns 
engaged in the same business. When it demonstrates this 
superiority to the individual, it will also elicit his support. 
Nor should the fact that some of the farmers of the com- 
munity fail to associate themselves with the company be 



138 THE COOPERATIVE ELEVATOR MOVEMENT 

looked upon as totally undesirable, even though they may 
be certain of deriving benefit from such affiliation. The 
company itself v/ill be a stronger business unit if those 
who are not in sympathy with it, do not become members. 
Persons of this type most easily create dissatisfaction, 
thereby undermining the general stability of the com- 
pany. Aloofness on the part of some members of the 
community will stimiulate the company to the highest busi- 
ness efficiency in order to be successful competitors of rival 
concerns; and the fear of losing its own members or 
patrons will prevent or at least minimize any tendency in 
the managing staff to deal unfairly with any of them. 

This leads to a consideration of the factors that con- 
dition success in conducting a cooperative elevator com*- 
panJ^ The three most prominent factors of success are, 
a proper form of organization, efficient mianagement, and a 
loyal membership. The advantages of the truly cooperative 
form of organization over the ordinary corporation, are 
fundamental. By limiting the amount of stock or share 
capital in which a person may invest and restricting the 
investment to the current rate of interest, the temptation 
of investing one's funds primarily on the expectation of 
high dividends is removed. By allowing each member only 
one vote regardless of the variations in the amount of cap- 
ital invested, democratic control of the organization is as- 
sured. By distributing to the members all net earnings on 
the basis of the patronage that each has contributed, the 
greatest incentive to loyalty is offered. Collectively, these 
features tend to make of the elevator company a producers' 
organization, controlled democratically, and existing pri- 
marily for their benefit. 

The cooperative form of organization provides, however, 
only the fundamental conditions most favorable to success. 
Without efficient management the form of organization 
will be of little avail. At best it can only postpone the time 
of failure. It is upon efficient management more than 
upon any other factor that the success of cooperative grain 
marketing depends. The varied nature and scope of the 
manager's work explain the intimate relation between 



SUMMARY AND CONCLUSION 139 

efficient management and success. The knowledge that he 
must possess of the grain trade, the business ability, the 
tact, the patience he must exercise, the impartiality he 
must show to all patrons despite his personal feelings — 
these are the features which make the qualities of the man- 
ager and his work so pivotal in the success of the company. 

That a company needs the support of its members in 
order to be successful scarcely needs proof, and appears to 
be but citing a truism. Only by making use of the system 
can the advantages of cooperative marketing be secured. 
When the board of directors proves itself worthy of the 
trust that the community has placed in it; when the man- 
ager is imbued with the spirit of service for the patrons; 
when they in turn contribute their grain unreservedly to 
the company, and when all feel a sense of social solidarity, 
increased by virtue of association — only then has the com- 
pany the loyalty necessary for its continued success. 

In the light of these demands for success and also con- 
sidering the factors which prompt and retard the organ- 
ization of new companies, what will be the probable future 
growth of the movement? Prophecy is always hazardous, 
but in as far as the future may be judged from the past, 
the movement should be expected to grow steadily as it 
has done during the last fifteen years. In judging the 
future in this instance, however, it is perhaps more im- 
portant to look to the present than to the past. It would 
seem that in the U. S. Grain Growers, Inc., a new organiza- 
tion has arisen which will greatly accelerate in the event of 
success, or arrest for some time, in the event of failure, 
the further growth of the movement. There seems no con- 
vincing reason to doubt that this corporation will attempt 
terminal cooperative grain marketing on a vast scale. If 
the initial experiment proves successful, the attempt will 
without doubt be made to organize local affiliated co- 
operative elevator companies in every important grain- 
growing community; if unsuccessful, this fact will receive 
wide publicity, financial losses on the part of local com- 
panies and individual members will probably occur; dis- 
trust in its leaders and organizations, and in the value of 



140 THE COOPERATIVE ELEVATOR MOVEMENT 

all corporate effort so laboriously built up, will revive in a 
large section of the rural classes. The present should, 
therefore, be looked upon as a critical period in the history 
of the cooperative elevator movement — critical in the sense 
that its future growth or retardation is closely bound up 
with the success or failure of the plan devised by the "Com- 
mittee of Seventeen" and finding application in the U. S. 
Grain Growers, Inc. 

It now remains to consider the place or adaptability of 
cooperative grain marketing in a general program of rural 
betterment. When in 1909 the late President Roosevelt 
transmitted to the Senate the Report of the Country Life 
Commission, he issued the following statement: "Our 
civilization rests at bottom on the wholesomeness, the at- 
tractiveness, and the completeness, as well as on the pros- 
perity of life in the country." In these words he at once 
epitomized the fundamental needs of American agricultural 
and rural life as also the recommendations of the commis- 
sion. Since that time there has been a renewed interest 
in the rural problem of this country, and the aims toward 
its solution have been gathered in the slogan : better farm- 
ing, better business, better living. Both the statement of 
the President and its more popular equivalent aim to in- 
culcate the importance of promoting agriculture not merely 
for the sake of the individual farmer or of the agricultural 
classes, but also as a means of promoting national safety 
and stability. Both statements recognize likewise the rural 
problem as not merely one of increasing the farmer's in- 
come but also of securing improved production, and better 
living conditions for the tillers of the soil. 

In formulating a rural policy on the basis of these needs, 
cooperative marketing finds a ready place. Cooperative 
marketing approaches the rural problem from the stand- 
point of "better business," but it does not thereby render 
more difficult of solution the problems of "better farming" 
and "better living." By securing for the grain grower a 
larger net income, it frequently provides the necessary 
foundation for better farming and better living. It in no 
way depresses but on the contrary it stimulates the 



SUMMARY AND CONCLUSION 141 

farmer's initiative to self-help. In this it is in thorough 
accord with the American spirit and traditions. Local co- 
operative grain marketing is indeed no panacea for all the 
marketing problems facing the grain-growing section of 
our rural population, but it does contribute toward the solu- 
tion of some of them. It is a form of enterprise deserving 
of encouragement and further extension. 



Appendix A 

ARTICLES OF INCORPORATION 

of the Cooperative Elevator Company 

of Minnesota ( * ) . 

We, the undersigned residents of County, 

State of Minnesota, do hereby associate ourselves together 
for the purpose of becoming incorporated as a cooperative 
association under the provisions of Chapter fifty-eight (58) 
of the Revised Laws of Minnesota, 1913, all acts amenda- 
tory thereof and supplementary thereto; and to that end 
we do hereby adopt and sign the following Articles of In- 
corporation : 

Article I 
The name of this corporation shall be the 



Cooperative Elevator Company. 

Article II 

The principal place of business of this corporation shall 
be Minnesota. 

Article III 

The purpose of this corporation shall be to buy, sell, and 
store all kinds of farm products, grains, seeds, coal, lumber, 
building materials, farm machinery, twine, tile, fence, and 
all such articles as may properly be handled to the inter- 
ests of the stockholders of this corporation; and to pur- 
chase, erect, maintain, and control warehouses and ele- 
vators for the storage of such products; and to buy, lease, 
and sell such property as may be needed for the transaction 
of the business of this corporation. 

Article IV 
The time of commencing business for this corporation 

shall be 19 .... , and the period of its 

duration shall be twenty years. 



(*) Except for very minor changes, these Articles, as also the Form of 
By-laws, are taken verbatim from L, D. Weld, Opus cit. pp. 15-21. 

143 



144 THE COOPERATIVE ELEVATOR MOVEMENT 

Article V 
The names and places of residence of the persons form- 
ing this corporation are: 

(Enter names on separate lines). 

Article VI 

The management of this corporation shall be vested in a 
board of directors composed of seven members. 

Ojfficers of this corporation shall be a president, vice- 
president, secretary, and treasurer. 

The board of directors shall be composed of these four 
officers ex officio and three other members. 

All officers and directors shall be elected by the members 
in annual meeting assembled; provided that the four oifi- 
cers shall be elected annually and that the other three 
directors shall be elected at the first annual meeting, one to 
serve for one year, one for two years, and one for three 
years, so that thereafter there shall be one elected each year. 
The officers and directors elected at the time of organiza- 
tion shall hold office until the next annual meeting. 

Names and addresses of the first board of directors are 
as follows: 

(Enter names on separate lines). 

Article VII 
No person shall be entitled to more than one vote, re- 
gardless of the number of shares of stock he may own. 

Article VIII 
The amount of capital stock of this corporation shall be 
ten thousand dollars ($10,000), which shall be paid in, in 
money or property or both, in such manner, at such time, 
and in such amounts as the board of directors shall order. 
The capital stock shall be divided into five hundred (500) 
shares of the par value of twenty dollars ($20) each. 

Article IX 
The highest amount of indebtedness or liability to which 
this corporation shall at any time be subject shall be a sum 
not to exceed the actual paid-in capital stock. 

In testimony whereof we have hereunto set our hands, 

this day of 19 ... . 

(Enter names on separate lines). 
Signed, sealed, and delivered in presence of 



County of 

State of Minnesota. 

On this day of 19 , person- 
ally appeared before me : 

(Enter names here). 



FORM OF INCORPORATION 145 

to me known to be the persons named in and who executed 
the foregoing Certificate of Incorporation, and each 
acknowledged that he executed the same as his free act and 
deed, for the uses and purposes therein expressed. 



Notary Public. 

Appendix B 

BY-LAWS 

of the Cooperative Elevator Company. 

Article I 

Section 1. The annual meeting of this corporation shall 
be held on the second Saturday of June of each year. 

Sec. 2. Ten days' notice shall be given of all meetings 
of the shareholders by publishing notice thereof in the local 
paper, and by circular notice mailed to each stockholder. 

Sec. 3. The directors, at the written request of twenty- 
five shareholders, may call a special meeting of the share- 
holders; the notice of said special meeting to contain a 
statement of the business to come before the same. 

Sec. 4. The president of the corporation shall preside at 
all meetings of the shareholders, and shall cast the deciding 
vote in all cases of a tie. Each shareholder shall have only 
one vote and no one will be allowed to vote by proxy. All 
ofificers shall be elected by ballot. 

Sec. 5. Twenty-five (25) per cent of all members shall 
constitute a quorum at all meetings of shareholders. 

Sec. 6. The board of directors shall hold at least four 
regular meetings each year, one in each of the months of 
September, December, March, and June, the exact time and 
place to be determined by the president. 

Sec. 7. Special meetings of the board of directors may 
be called by the president or any three of said board, and 
notice of such meetings shall be given each member by mail. 

Sec. 8. No business except that mentioned in call for 
special meeting shall receive final action at said meeting. 
Five directors shall constitute a quorum at all meetings of 
the board of directors and a majority vote of the m.embers 
present shall decide all questions except the transfer of 
grounds and buildings, which shall require the presence of 
the whole board and a majority vote thereof. 

Article II 
Board of Directors — Duties and Powers 
Section 1. The board of directors shall appoint and fix 
salaries or compensation of all officers, agents, and em- 



146 THE COOPERATIVE ELEVATOR MOVEMENT 

ployees of the corporation, except as hereinafter specified, 
and have power to fill all vacancies in the board or its 
officers. 

Sec. 2. The board of directors shall at every annual 
meeting of the shareholders render a full detailed account 
of all business and property of the corporation during the 
year. They shall also render a similar account at any 
special meeting of the shareholders when required to do so 
by a vote of the shareholders, a reasonable time being given 
to prepare the same. 

Sec. 3. The board of directors shall audit all accounts 
at their regular meetings at least four times a year, and 
shall have the books audited at least once a year by an ex- 
pert and qualified auditor who is not a stockholder of the 
company, such audit to take place during the thirty (30) 
days preceding the annual meeting. 

Sec. 4. The board of directors shall have power to do 
such acts and adopt such measures, not inconsistent with 
the Articles of Incorporation, as they shall deem best cal- 
culated to promote the interests of the shareholders, and to 
that end, shall from time to time, prescribe such rules and 
regulations for the management of the business of the 
corporation as they deem expedient. 

Sec. 5. Each member of the board of directors shall re- 
ceive two dollars (?2) for each regular or special mxeeting 
he attends. 

Article III 

Duties of Officers 

Section 1. The president shall be the presiding officer 
at all meetings of the board of directors, and of the corpora- 
tion. He shall be ex officio, member of all committees. He 
shall sign, execute, and deliver all deeds or conveyances of 
real estate which the directors may order executed, and 
shaR sign all certificates of stock of the corporation, and 
perform such other duties as the board may direct. In 
case of absence, inability to act, or death of the president, 
the vice-president shall discharge the duties of the presi- 
dent until his return, or until his disability is removed or 
the vacancy filled. 

Sec. 2. The secretary shall attend all meetings of the 
shareholders and board of directors, and keep in a suitable 
book the minutes of said meetings. He shall have charge of 
the records and papers of the corporation; shall have 
charge of and affix the corporate seal to all such documents 
as may require attestation; shall issue notices of all meet- 
ings; shall countersign all certificates of stock and all 



FORM OF BY-LAWS 147 

orders drawn on the treasurer ; and perform all duties gen- 
erally incident to the office of secretary. His records shall 
be open to inspection of any of the directors at all proper 
business hours. 

Sec. 3. The treasurer shall receive all money paid to the 
corporation and give his receipt therefor; he shall pay out 
the same under direction of the board of directors, and he 
shall make such disposition of the funds on hand as the 
board of directors shall determine. He shall keep in a suit- 
able book a true account of all transactions. He shall make 
a full detailed report of all receipts and disbursements to 
the board of directors at their regular quarterly meetings, 
and an annual report of the same to the shareholders at 
the annual meeting thereof. The books of the treasurer 
shall at all times be open to the inspection of the directors. 
He shall also furnish bonds to the amount of from three 
thousand dollars ($3,000) to ten thousand dollars ($10,- 
000) at the discretion of the board of directors. 

Sec. 4. The manager shall keep a true record of all busi- 
ness transacted by him and carefully keep all correspond- 
ence of importance. Said records and correspondence 
shall at all times be open to inspection by any member 
of the board of directors, or any person the board may di- 
rect or appoint to investigate said books and correspond- 
ence, and the general manager shall at all times give any 
information the directors may ask, and report the condi- 
tion of the affairs of the corporation to the board of di- 
rectors at their regular meetings, make a daily report to 
the treasurer of all business transacted, and an annual re- 
port to the president for the annual meeting of the stock- 
holders five days before such meeting each year; shall call 
in all moneys due or belonging to the corporation except 
stock subscriptions and pay the same immediately to the 
treasurer, taking his receipt therefor ; shall make drafts on 
the treasurer for all commodities handled by him, stating 
what they are given for; shall perform all other duties 
which the board of directors may direct, and shall give 
bonds to the amount of three thousand dollars ($3,000) to 
fifteen thousand dollars ($15,000), at the discretion of the 
board of directors, for the faithful performance of his 
duty. 

Article IV 
Stock 

Section 1. No member shall be entitled to hold more 
than five shares of stock at any one time. 



148 THE COOPERATIVE ELEVATOR MOVEMENT 

Sec. 2. In case of the sale of stock by any member, the 
corporation shall have the first acceptance or refusal of 
such stock, after which the stock may be sold to any person 
eligible to membership as shall be determined by the board 
of directors. 

Sec. 3. All applications for stock must be submitted to 
and approved by the board of directors, before such stock is 
issued. The certificates of the capital stock of this com- 
pany shall be issued in such form as the board of directors 
shall direct, and shall be numbered and registered as issued. 
They shall exhibit the holder's name, the number of shares, 
and the number of certificates, and shall be signed by the 
president, and countersigned and sealed by the secretary. 
Any person who owns one or more shares of stock shall be 
deemed a member of the corporation. 

Sec. 4. Transfers of stock shall be made only on books 
of the company in the presence of the secretary or other 
authorized ofl^cers of the company, either by the holder in 
person or by his attorney, and in case of transfer by an at- 
torney, executor, administrator, guardian, or other legal 
representative; duly authenticated evidence of their au- 
thority to act shall be produced to the proper oflficers. 

Sec. 5. Stock shall be assessable, but there shall be no 
assessment levied at any tftne unless at a regular or special 
meeting of the stockholders, and no assessment can be m.ade 
at any such meeting unless each stockholder has been duly 
notified by a written notice thereof ten (10) days prior to 
such regular or special meeting at w^hich time an assess- 
ment shall be levied. 

Article V 
Distribution of Dividends and Profits 

The proceeds of the business, after the payment of 
operating expenses and interest on indebtedness, shall be 
distributed as follows: 

1. Dividends not to exceed six (6) per cent on sub- 
scribed capital stock, at the discretion of the directors. 

2. Of the remaining balance there shall be set aside 
each year as a surplus or reserve fund, twenty (20) per 
cent, until such surplus equals forty (40) per cent of the 
paid-in capital; said sum to be used in pajTnent for im- 
provements and new buildings, to make up losses, and for 
such other purposes as the board of directors shall de- 
termine. 



FORM OF BY-LAWS 149 

3. The remaining balance shall be divided on the basis 
of the amount of business transacted with the corporation 
by individual patrons, provided that non-sharing patrons 
shall receive only one-half the amount received by share- 
holders per unit of business transacted; and provided also 
that this amount in the case of non-shareholders shall not 
be paid out but shall be credited to said non-shareholder 
without interest until a sufficient amount to pay for one 
share has accumulated, whereupon a share shall be issued 
as fully paid to said non-shareholding patron entitling him 
to all the privileges of a member of this corporation. 

Article VI 
Speculation 
All stored grain shipped out, all grain bought or held, 
and contracts with growers involving future delivery of 
actual grain, shall be properly hedged in the "futures" 
market; otherwise there shall be no buying or selling of 
"options" or "futures." 

Article VII 

Neglect on the Part of Officers 

Any officer who fails to perform his duties as prescribed 
in these by-laws may be removed from office by the board 
of directors, and any officer making a contract not author- 
ized by the board of directors shall be liable to dismissal 
from office and such officer and bondsman shall be liable to 
the full amount of said contract. 

Article VIII 

Amendments 
These by-laws may be amended at any regular or special 
meeting by a two-thirds vote of the members present and 
voting at such meeting, provided due notice is given of 
proposed amendments to all members at least ten (10) days 
before such meeting. 



150 THE COOPERATIVE ELEVATOR MOVEMENT 



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152 THE COOPERATIVE ELEVATOR MOVEMENT 

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VITA. 

The author of this dissertation was born at Newport, 
Ohio, on January 1, 1894, and received his early education 
in the public school at Egypt, Ohio. In September of 1907 
he entered St. Joseph's College, Collegeville, Ind., where 
under the direction of the Fathers of the Precious Blood 
he completed his academic and collegiate courses on June 
15, 1913. In September of the same year, he entered St. 
Charles' Seminary, Carthagena, Ohio, where he attended 
the courses in Philosophy and Theology. On September 
8, 1915, he was received into the Society of the Precious 
Blood as one of its members. He w^as ordained to the 
Holy Priesthood by his Grace, the Most Reverend Henry 
Moeller, D.D., Archbishop of Cincinnati, on December 29, 
1918. Soon after he entered the Graduate School of Phi- 
losophy of the Catholic University of America, choosing 
Economics, Sociology, and English as his subjects of study. 
In Economics he followed courses under Dr. O'Hara, Rev. 
Dr. Ryan, Dr. Deviny, and Dr. Purcell: in Sociology, un- 
der Rev. Dr. Kerby, Rev. Dr. O'Grady, and Rev. Dr. 
Cooper: in English, under Dr. Lennox and Dr. Hemelt. 
He moreover attended the course in Social Psychology un- 
der the Rt. Rev. Dr. Pace. The writer takes very great 
pleasure in expressing his gratitude to all his professors. 
In a special manner he feels indebted to Dr. O'Hara, who 
supervised his major work and under whose direction this 
dissertation was written. His corrections, suggestions, 
and encouragement are most gratefully remembered. The 
writer expresses his thanks also to Mrs. O'Hara, who read 
the manuscript with the view of correcting faults of style. 
He is indebted likewise to many others who have supplied 
him with necessary and useful information in the prepara- 
tion of this work. He takes special pleasure in thanking 
Rev. Dr. Kerby, Rev. Dr. Ryan, and Mr. Millard R. Myers, 
of Chicago, the editor of the American Co-operative Jour- 
nal, for valuable suggestions and for having reviewed the 
entire manuscript. 

155 



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